Did Industrialization Destroy Social Capital in Indonesia?

This paper examines the effect of industrialization on social capital in Indonesia during 1985 to 1997 using repeated cross-sections of nationally representative surveys. We analyze a rich set of social capital measures including multiple measures of voluntary associational activity, levels of trust and informal cooperation, and family outcomes. There are three main findings. First, districts that experienced rapid industrialization showed significant increases in most social capital measures. Second, districts that neighbor rapidly industrializing areas exhibited high rates of out-migration, significantly fewer community credit cooperatives, and a reduction in “mutual cooperation” as assessed by village elders. Finally, initial social capital in a district did not predict subsequent industrial development. We present a model of social capital investment and migration consistent with these patterns. The empirical findings challenge existing results in the social capital literature, and may have implications for social instability in Indonesia since 1997. ______________________________ Acknowledgements: We are grateful to the Bureau of Statistics of the Government of Indonesia for providing access to the data, and to the U.C. Berkeley Center for the Economic Demography of Aging (CEDA) and the U.C. Berkeley Clausen Center for funding. We are also grateful to Garrick Blalock, Esther Duflo, Maya Federman, K. Kaiser, and Jack Molyneaux for sharing data with us. We would like to acknowledge Robert Akerlof, Kok-Hoe Chan, Fitria Fitrani, and Sebastian Martinez for excellent research assistance, and are grateful to George Akerlof, Gillian Hart, Michael Kremer, Ronald Lee, and seminar participants at U.C. Berkeley, Harvard University and the World Bank for useful comments. The usual disclaimer applies.