Activating social capital in Asia: evidence from the Asian financial crisis

One of the unresolved puzzles in social capital literature is why social capital facilitates development in selected countries but not in other countries with similar level of social capital. To tackle this puzzle, this study differentiates social capital accumulation with social capital activation drawing on Coleman’s concept of trustworthy social structure. Under social capital activation, norms of reciprocity spans between civil society and government, lowering transaction costs for cooperation. Without social capital activation, norms of reciprocity only span among the respective network of civil society and government, raising transaction cost for cooperation. Specifically, we examine how social capital affects institutional quality in East Asian countries with similar level of social capital accumulation before and after the Asian financial crisis. The empirical results indicate that social capital enhances institutional quality primarily in the most affected countries, particularly in IMF-intervened states following the crisis. This study suggests that social capital was activated by the wave of political and administrative reforms, thereby reshaping the norms of reciprocity between civil society and government. Our results hold after several robustness checks.