Social Capital Contribution To The Economic Growth Of The Russian Federation Regions

Abstract

At the present stage of development, people more and more turn to new sources of economic growth and to improvement of social and economic conditions. In the mind of the citizenry, social ties, social relations, voluntary associations, and the level of trust that represent social capital play the increasingly larger role. One of the sources of social capital is the participation of the population in public organizations. The object of current scientific work is social capital in the form of voluntary participation of the population in nonprofit organizations. The purpose of the current scientific work is the research of influence of the population’s degree of involvement in public organizations, in community-focused nonprofit organizations, in particular, on the economic growth of the Russian Federation regions. Solow-Swan extended regression model of economic growth, based on the Cobb-Douglas production function, was applied in order to test the hypothesis. The analysis of the community-focused nonprofit organizations activities, as well as the findings obtained as a result of the simulation, made it possible to show the significance of public participation in the community-focused nonprofit organizations activities in ensuring economic growth and social and economic development of the Russian Federation regions. The development of not-for-profit sector plays a special role in the country and regions development.

Keywords: Social capitaleconomycapital

Introduction

Current conditions of the unstable economic and political situations, growing complexity in the relationships between various groups of the population and the authorities, and increasing of the social needs level stipulate the search for new approaches to the economic development of the territory. At the same time there is a constant growth of non-economic (social, political, etc.) factors (Castaño, Méndez, & Galindo, 2015; Chang & Shi, 2016). Consequently, social capital can serve as an essential factor in ensuring social and economic development of regions (Kramin, Grigoryev, Timiryasova, & Vorontsova, 2016). Increasing social capital development level in Russia can significantly expand the country's capacity to solve existing problems.

Traditionally, the elements of social capital include the level of trust in society, the maintenance of social values, mutually shared and reinforced (Dinda, 2018), the citizens’ and organizations’ public engagement, the bifurcation and diversity of social ties in the form of associations, unions, alliances and community-focused nonprofit organizations (Grigoryev, Klimanova, Kramin, & Kramin, 2015).

The formation of social capital occurs at various levels: families, groups, communities, organizations, administrative territorial units (Kaasa, 2016; Shakirova & Kramin, 2017), regions (Botzen, 2016), countries. The impact of social capital on economic growth, on population welfare, on social development of the territory depends on the scale and density of relations formed at these levels.

Various sources of social capital formation are singled out in the literature devoted to its study, one of which is the participation of citizens in public organizations or associations. Portes & Sensenbrenner (1993) identified four sources of social capital: first, value-based orientations, second, individual social interaction, third, limited solidarity, and fourth, forced trust. The third and fourth sources of social capital are formed within groups or organizations. Stolle & Rochon (1998) also pointed out that various associations and unions can serve as the source of social capital formation. Thus, the authors studied the relationship between social capital and the population’s degree of participation in various types of associations. Fukuyama (2001) also singled out nongovernmental organizations and foundations as one of the sources of social capital. Also, according to Enjolras & Sivesind (2018) the third sector’s is a great resource for improvement of well-being, innovation, empowerment or economic development and social capital.

The Organization for Economic Cooperation and Development carried out a lot of work to study the field of social cooperation and the formation of organizations at the local level, in particular, the not-for-profit sector was under investigation. In this work, it is pointed out that countries, where non-profit organizations and associations occupy a significant niche, benefit by increasing the competitiveness of this industry, by reducing its dependence level on state funding. In addition, processes such as formation of social capital, rehabilitation of public stance and collective public stance, revival of the economy and modernization of management models at the local level occur in these countries (OECD, 2003).

The results of longstanding work of the Johns Hopkins University Center for Civil Society Studies show that in developed countries nonprofit organizations make a very large contribution to the economy, both in terms of national income and employment and welfare of the population (Salamon, Sokolowski, & Haddock, 2017). When studying the role of social capital as a factor in economic systems growth, Grigoryev, Klimanova, Kramin, & Kramin (2015) pointed to a great potential of the public sector, which is represented by community-focused nonprofit organizations. According to the authors, effects of social capital in the form of nonprofit organizations are increasing efficiency of social and economic systems functioning, growth of the population’s well-being, and easing of social tension.

Social capital in the form of public participation in nonprofit organizations opens up additional opportunities for using the potential of the economy in rural areas within the conditions of import substitution policy implementation, due to which Russian regions transition from the inertial to the innovative way of development is possible (Shcherbakova, 2016).

Thus, the not-for-profit sector and the participation of citizens in public organizations contribute not only to meeting the needs of the population, but also to creating a favorable business climate, the stability of innovative economic development.

Problem Statement

The participation of population in public organizations and associations can have an impact on maintaining trust between participants, expanding the sphere of influence of citizens, increasing the welfare of society as a whole, and the individual community in particular. Participants have an opportunity to act collectively, to form various ties, to achieve the most favorable effect from the organization's activities in the sphere of social, political or economic management.

Thus, when comparing the results of the devolution of power to the regions reform in Italy, Putnam, Leonardi, & Nanetti (1994) turned attention to the fact that in the "northern" regions where people are more socially active (based on such characteristics as election turnout and participation in associations) political institutions are more developed. The scientist showed that the propensity for civic engagement, participation in sports clubs, volunteer organizations, choral societies and other informal organizations affect the level of development of Northern and Southern Italy. Putnam points out the differences in social capital of these territories and, consequently, difference in the contribution that social capital brings to the continuing gap in economic performance and public administration efficiency between Northern and Southern Italy.

In addition, Putnam (1995), using the same approach, combining data from academic and commercial resources, showed a stable long-term decreasing tendency in social capital in the United States by the example of participation of the population in associations and civic organizations.

Knack & Keefer (1997) on the basis of the regression model, assessed the relationship between the level of trust, ethical norms and membership in associations with the rates of economic growth of states. According to scientists, the findings allow the authorities to take measures to improve the economic situation.

Based on the social capital index, Beugelsdijk & Van Schaik (2005) established differences in the regional development of 54 Western European regions. The social capital index was defined on the basis of such indicators as trust and civic engagement. According to the findings of the study, a higher value of the social capital index is found in the regions with a high level of economic development, which enables researchers to confirm that there is a positive relationship between economic growth and social capital in the form of civic activity.

Callois & Schmitt (2009) conducted an econometric analysis of the data of rural regions in France, which established the influence of forms of social capital on economic growth. An empirical assessment of economic role of social capital’s certain elements, such as the intensity and nature of local social relations is made in current work. Researchers analyze how these three forms of social capital affect the growth of employment and population and confirm the positive role of these variables.

Matsushima & Matsunaga (2015) measured social capital as generalised trust, membership of civil society organisations, and volunteering. According to the results obtained, social capital showed a statistical significance.

Peiró‐Palomino (2016) analyzed the role of two social capital indicators on the growth of 237 European regions in the period 1995–2007 by implementing a set of both parametric and nonparametric regressions. Regarding active participation in associations, both parametric and nonparametric analysis coincided in considering this variable as significant. Nevertheless, the average coefficient provided by the parametric analysis is far from capturing the influence of the regressors in some regions, where regressors’ impact might depart remarkably from the mean value. The nonparametric methods applied permitted calculating individual partial effects and evaluating the potential parameter heterogeneity of social capital.

Helliwell, Aknin, Shiplett, Huang, & Wang (2017) proved positive linkages among social capital, prosocial behaviour and subjective well-being. Whether in the workplace, at home, in the community or between countries, better and deeper social connections, and especially higher levels of trust, are associated with higher subjective well-being, even beyond the effects of higher incomes and better health.

Majeed (2017) investigated the impact of social cohesion on economic growth using a panel data of 44 countries of the Organisation of Islamic Cooperation over the period 1986–2010. The study has employed a comprehensive measure of social cohesion that covers a large number of social indicators such as inequality, trust, terrorism, and social conflicts. Study finds out that the growth effect of social cohesion is positive and significant in the Muslim world.

Not only the population’s participation in the activities of public organizations, involvement in associations, clubs, and local communities affects the development of the territory, but also nonprofit organizations affect the economic and social development of regions and countries.

Importance of the not-for-profit sector analysis is conditioned by its actual and potential role in the life of society. Anheier & Rudney (1998), comparing the impact of the not-for-profit sector on the US and West German economy, found that nonprofit organizations in the USA have a greater impact on the economy as a whole. Thus, for $1 spent in the USA, there is $0.83 in the form of payoff from expenditure, whereas in West Germany, for every dollar spent, there is only $0.43 needed. Salamon & Sokolowski (2018) showed the share that the nonprofit sector workforce represents of the total number of people emptied in each region in Europe. Share varies from a high of 15 percent in the Northwestern European countries to a low of 9.5 percent in Central and Eastern Europe.

The analysis of the not-for-profit sector contribution to the Russian economy and the impact of public participation in public organizations has not been fully explored.

The first attempts to apply the concept of social capital for studying the Russian regions were made by Marsh (2002) in his works. The author offered a technique for measuring the index of social capital in a number of regions in Russia. The index includes such indicators as "the volume of newspapers publication", "the number of civil clubs/associations", "electoral engagement" in a certain region of the Russian Federation. Marsh found a correlation between the civil society index and the democratization index, a high democratization index was found in regions with a higher civil society index.

Trubekhina (2012), based on the use of Geo-rating data from the Public Opinion Foundation and economic statistics (small business turnover per capita in the region and gross regional product per capita), found a positive correlation of participation in various groups and organizations (as an aspect of open social capital) with the value of the gross regional product per capita,

The role of nonprofit organizations in the economy is to estimate the share of nonprofit organizations in the gross domestic product or in the volume of services produced (Suslova, 2015), as well as the employment in NPOs to population ratio (or gainfully employed population). According to the studies conducted, the share of NPOs in Russia's GDP has been gradually declining over several years. In general, the share of NPOs does not exceed 1% during the periods studied. In studies of the role of not-for-profit sector in foreign countries, this share is much higher (Makarova & Kuteeva, 2014).

Despite importance and significance of the nonprofit organizations work and the population engagement in it, there are no works in scientific literature, with the interconnection of the influence of citizens' participation in nonprofit organizations on economic growth in Russia examined based on regression models and balance approaches. The previous studies are fragmentary. In this regard, it is necessary to study the influence of social capital as a voluntary participation in nonprofit organizations on economic growth in Russia at the current stages of development.

Research Questions

It is necessary to definethe research questions for further work:

  • Does social capital influence the economic growth of regions in the form of voluntary participation in nonprofit organizations?

What contribution does voluntary participation in nonprofit organizations make to the gross regional product?

Purpose of the Study

The objectives of this paper are:

  • To test the hypothesis about the impact of voluntary participation of the population in nonprofit organizations on economic growth based on modern econometric approaches.

  • To estimate the impact of voluntary participation of the population in nonprofit organizations to the gross regional product.

Research Methods

Hypotheses development

The increasing influence of the not-for-profit sector in the Russian Federation is evidenced by the growth of such indicators as the revenue from disposal of commodities, works, services implementation, sale of property (except for income from endowment), the total amount of funds and property received, the amount of donations, grants to community-focused nonprofit organizations.

Table 1 -
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The following regions are leading in terms of the number of community-focused nonprofit organizations: Krasnodar Territory, Moscow, Republic of Tatarstan, Sverdlovsk Region, and Moscow Region.

The total number of employees of community-focused nonprofit organizations reached 630.3 thousand people in 2017, which amounted up to 0.8% of the country's workforce. One community-focused NPO, on average, has 4 workers and 19 volunteers.

Table 2 -
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To the present government increasingly see nonprofit organizations as valuable resource for addressing social problems in Russia. The result of this attitude is a great public sector support, mainly in the form of competitive grants awarded to nonprofit organizations working in areas of social importance (Mersianova, Kononykhina, Sokolowski, & Salamon, 2017).

The regression model

The Solow-Swan extended regression model of economic growth based on the Cobb-Douglas production function was used in current study in order to test the hypothesis about the influence of voluntary participation of the population in nonprofit organizations on economic growth.

Y t = K k α t L β t K s γ ( t ) (1)

Where Y(t) – aggregate primary product (yield) of the economic system for the period t ;

K k α t –physical capital for the same period;

L β ( t ) – labor force sizefor the same period;

K s γ ( t ) – social capital for the same period.

For the linear regression model conversion, we applied the logarithmic function to both parts of the formula(2).

When building the model, the following variables were used.

Y(t) – Gross Regional Product (GRP).

The physical capital K k ( t ) is usually taken in the form of gross value of the fixed capital (in the regression model below this variable is named as OSNF).

L(t) – the labor force size (in the regression model is named as RAB_SILA). Data for these variables are taken from the annual reports "Regions of Russia. Social and economic indicators" for the period from 2012 to 2016.

K s ( t ) – social capital, the measure of which is the average number of volunteers in community-focused nonprofit organizations in the region (in the regression model is named as NKO_DOBROVOL). The data are "Results of a sampling inquiry of community-focused nonprofit organizations on the basis of Form No. 1-SONKO» (Reports "Regions of Russia. Social and economic indicators" and "The results of a sampling inquiry of community-focused nonprofit organizations on the basis of Form No. 1-SONKO"are published socially by the Federal State Statistics Service (Rosstat) on the official website: www.gks.ru.) for the period from 2012 to 2016.

Sample

The paper considers data on 83 regions of the Russian Federation (the sample does not include the Republic of Crimea and the city of Sevastopol due to the lack of some indicators). Regression model covers the period from 2012 to 2016. The selection of periods is conditioned by the availability of information on the average number of volunteers in nonprofit organizations, starting with the reports for 2012 regionally.

The use of regional data in equations significantly improves the overall characteristics of the model and allows us of examining the general development trends in the country. The data for the Russian regions are homogeneous. Such a selection of data allows for an in-depth study of new or previously undervalued factors of the economic systems economic growth. However, heterogeneous characteristics of Russian regions, such as climate, geographic location, demographic situation, reserves and natural resources degree of development, can be considered as uncertainties.

Findings

With the aim of transition from formula (1) to the linear regression model, a logarithmic function was applied in both parts of this formula. Using the previously mentioned notation, we obtain the formula.

L o g G R P = C + α L o g ( O S N _ F ) + β L o g ( R A B _ S I L A ) +

+ γ L o g ( N K O _ D O B R O V O L ) (2)

As a result of regression modeling, the following final form of the regression model is obtained, it is presented in Table 3 .

Table 3 -
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The results of the regression model show that this model is well specified. The coefficients of external variables have high significance. The model explains more than 96% of the dependent variable deviation. GRP elasticity for all capital components meets all the established assumptions (they are positive and less than 1).

Thus, being a source of social capital, participation of the population in nonprofit organizations allows ensuring economic growth of the territory, promoting social and economic development.

Conclusion

The development of not-for-profit sector plays a special role in the country and regions development. By influencing the social sphere, nonprofit organizations also have a positive impact on the economic system development. Being a source of social capital, public organizations can ensure its accumulation and influence the economic growth of the regional economy.

To evaluate the compounding effect of social capital on economic growth, an expanded and modified model of economic growth was used in Russia. The model expansion was expressed in the inclusion of social capital in it. The model development is to refine the group of indicators that characterize the level of social capital, and also to expand it to the regional level.

As a result of the regression model application, which is based on the Cobb-Douglas production function, regional differences in GRP in Russia (for the period from 2012 to 2016) and elasticity indicators of various capital components included in the model were identified and mathematically proven. It is demonstrated that differences in the volume of human, physical and social capital make a significant contribution to the interregional fluctuations of GRP.

The state bodies’ policy, aimed at the development of non profit organizations as a source of social capital, is relevant in modern conditions and can bring a positive economic and social effect to society. Since from the economic point of view, social capital reduces transaction costs, ensures compliance with agreements, maintenance of contracts, etc., the NPOs development is equivalent to the social capital accumulation.

Acknowledgments

The work was supported by the Russian Foundation for Fundamental Research and the Republic of Tatarstan, within the framework of the research project No. 18-410-160010 ра.

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Shakirova*, A., & Kramin, T. (2019). Social Capital Contribution To The Economic Growth Of The Russian Federation Regions. In & V. Mantulenko (Ed.), Global Challenges and Prospects of the Modern Economic Development, vol 57. European Proceedings of Social and Behavioural Sciences (pp. 442-452). Future Academy. https://doi.org/10.15405/epsbs.2019.03.44