Social capital and household income in urban Colombia

Social capital in Colombia has not been a subject of study from a microeconomic perspective, though social relationships directed towards obtaining common benefits can be a determinant of household income. This document argues and explains the relationship between social capital and household income in urban Colombia, using the Fedesarrollo Social Survey (2002) in Bogotá, Medellín, Cali and Barranquilla. The main objective is to reinforce a theoretical and analytical framework that develops the economic concept of social capital. The theoretical model establishes that the effect of social capital on the level of household income is positive and it is transmitted through a human capital multiplier. The empirical analysis measures social capital as the density in participation of voluntary associations; it uses instrumental variables to estimate the determinants of social capital in Colombia and its relationship with income. Results suggest that social capital has a positive impact on household income and propose the importance of keeping in mind horizontal organizations when conceiving long run policies to raise incomes and to improve welfare. Finally, it is suggested for future analysis to examine the process of accumulation of social capital and the development of collective action models.