Fixing Prices of Prizes

DEPARTMENT OF POLITICAL SCIENCE

UNIVERSITY OF THE PHILIPPINES-DILIMAN DILIMAN, QUEZON CITY

Fixing Prices of Prizes

A Study on how Socioeconomic Development is Influenced by the Social Capital1

In partial fulfillment of the requirements in Social Science 103 (Quantitative Research Methods) under Professor Alicor Panao

Leoniliane D. Besa

May 28, 2015

1 This paper is in compliance for an undergraduate course on Quantitative Research Methods (or Social Science

103)


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ABSTRACT

This paper covers the 2013 data of Human Development Index (HDI) and the average

voters‟ turnout of 187 countries across the world in order to see the relationship between

socioeconomic development and social capital. The paper provides the hypothesis that social

capital is positively related to socioeconomic development. The study also tries to explore the

extent at which the level of voters‟ turnout will cause lower levels of development and the degree

that it will provide positive development. With this, the paper does not intend to cover social

capital broadly and, in essence, focuses on civic participation measured by the willingness of the

people to cooperate with and trust the government in the process of election. However, other

indicators of social capital namely; literacy rate, level of democracy, press freedom, and number

of elections are included as controlled variables. Gross Domestic Product (GDP) is also included

as a control to highlight the economic aspect of socioeconomic development. With the ordinary-

least squares (or OLS) model in its quadratic from, the paper finds evidence to support that

voters‟ turnout as a measure of social capital increases socioeconomic development from a

vertex point that sets the minimum value of voters‟ turnout that will encourage development. The

level of socioeconomic development decreases as average voters‟ turnout increases until it

reaches the turning point where an increase in average voters‟ turnout provides opportunity for

growth. Other indicators of social capital, included in the model, are found to be significant in

proving that socioeconomic development is positively related to social capital—except for level

of democracy and number of elections. But upon the interaction the level of democracy with

press freedom, the joint test proves that it is equally significant to support the relationship

between social capital and socioeconomic development. In summary, the paper suggests that, the

levels of voters‟ turnout, as a measure of social capital, indicates that below and above the

tipping point socioeconomic development can be achieved.

Keywords: Leoniliane D. Besa, Social Science 103, UP Diliman, POLSCI Department, Alicor Panao,

Social Capital, Socioeconomic Development, Political Participation


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INTRODUCTION

Social and economic indicators are measures of the level of development in a country.

However, classifying and quantifying social factors are much more challenging than doing it

with economic ones. This challenge provides the factor that the study will focus on. For the

purpose of this paper, discussion will center on the relationship between socioeconomic

development and social indicators specifically social capital. Nevertheless, the paper does not

intend to cover social capital broadly and, in essence, focuses on civic participation measure by

the willingness of the people to cooperate with and trust the government in the process of

election.

In relation to this, the paper is built on the hypothesis that voters‟ turnout, as an indicator

of social capital, drives socioeconomic development. However, the study also explores on the

extent at which the level of voters‟ turnout will cause lower level of development and the degree

that it will provide positive development. The first part of this paper will provide the background

and the current state of knowledge about the topic. This will be followed by the methodology of

the study that will provide the backbone of the results and discussion which constitute the third

part. Lastly, a summary and conclusion will be provided at the end of the paper.

BACKGROUND AND LITERATURE REVIEW

Socioeconomic Development

The socioeconomic development of a country, from the concept itself, is dependent on

social and economic factors. However, the nature of these two factors differs from one another.

Social development focuses on providing welfare to the people and the creation of social change

that alter, not only the institution, but also individual values and behaviour for the improvement

of the quality of life (Paiva 1977; Sekhar 2005). It also takes into account the relationships

between the people and the society that guides the people‟s way to demand their needs and the

society‟s medium to provide it (Paiva 1977).On the other hand, economic growth and

development relies on “macroeconomic stability, a sound financial system, a healthy savings-


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investment rate, well-developed infrastructure and human capital development” (Sekhar 2005:

5343).

Despite the difference between the two, these factors come together to determine the state

of development within a country. Sekhar (2005) argued that the end of economic development is

the improvement on the quality of life or social development. Alternatively, social development

can be a predictive measure of economic development. But then, social development does not

also work by itself, as economic development helped in the country‟s poverty reduction goals

(Ahluwalia and Hussain 2004).

Social Capital

Social scientist agreed on the idea that social capital, with its diversified character, does

not have a single definition (Josten 2004; Knack 2002; Li, et al. 2005). The scope concept

changes over time and its definition adjusts with it. Accordingly, as a concept, social capital

evolves and moves into different aspects of the society. In his critical analysis of Putnam‟s

Bowling Alone, Boggs (2001) argue that Putnam fails to establish a clear account on the

relationship between social and political realms. In accordance to this, Putnam‟s argument on the

erosion of social capital, according to Boggs (2001), seemed to focus on specific criteria that do

not actually include social and political participation that departs from the traditional measures of

social capital.

However, there are specific features that scholars attribute to social capital. Social capital

has four defining features and these include “trust, norms of reciprocity, [cooperation], and

network of civic engagement” (Putnam 1993: 170-74 in Tavits 2006: 212; Cheng and

Mittelhammer 2008; Koop and Schyns 2010; Susilo and Arsyad 2012). Based on Coleman‟s

definition, Josten (2004) identified social capital as a public good from individuals‟ investment

of time and effort assisted by human capital accumulation; however, social capital is further

reduced by growing inequality. In addition, social capital is built through strong loyalties within

homogenous group creating a bonding network as it is integrated to a larger part of the society

where heterogeneous group can be formed through bridging (Odegard and Berglund 2008).

Although build on trust and cooperation, contrary to physical capital, there is a reason

why the concept is classified as a form of capital. Social capital has its capital-like properties


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present in physical capital goods namely: “transformation capacity, durability, flexibility,

substitubility, decay, reliability, and ability to create one capital from another, opportunities for

investment [or disinvestment], and alienability” (Robinson, et al 2002: 9). These properties make

social an efficient and effective form of resources.

Social Capital and Politics

While the definitions presented shows that social capital existed in the realm of society,

the concept holds significant aspects contributing to the political sphere. Lukatela (2007) argued

that political participation is influenced by social capital. This concept does not only influence

the people, but also, the government. In effect, social capital can influence government

performance or “[its] responsiveness to its constituents and efficiency in conducting the public‟s

business” (Putnam 1993: 63 in Tavits 2006: 211). In the lens of politics, it enhances

administrative efficiency by providing cooperation within the society to raise their demands and

concerns (public goods and services) to the government. It can also provide cooperation within

the bureaucracy to come up with solutions to different problems concerning the agency (Tavits

2006).

Odegard and Berglund (2008) recognize that social capital is based on individual actions

where mechanisms of action are done in a society and reinforced by the effectiveness of the

political system to aggregate demands and encourage participation. This is further elaborated by

the idea that “norms of reciprocity and networks of civic engagement favour [the argument that

effective government-citizens relationship is the outcome of successful solutions to dilemmas of

collective actions], because they reduce the costs of defection, facilitate information among

people, reduce uncertainty and provide models for future cooperation” (Serra 2001: 694). This

argument supports Koop and Schyns‟ (2010) view that social capital provides external efficiency

or government effectiveness but these authors neglect the thesis of administrative efficiency.

According to Knack (2002), the positive relationship between social capital and

government performance can be seen in two aspects. The first one is accountability that can

broaden responsiveness to the interest of the public. Then, it can also facilitate answers to

political concerns that cannot be solved. Moreover, one of government‟s accountability is the

election process. This gives the government officials a view and understanding of the things that


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capture the public interest. Consequently, giving the people the right to vote checks on the

performance of the politicians if they are lacking ability or aware and skilled for their tasks.

For some countries, the anti-thesis of trust is fundamental for its social capital. The case

of the late Florence and Venice put forwards that mistrust is a building block of social capital.

These people choose to trust the government by weakening the exercise of human rights in the

realm of electoral system. Elections are done through lottery where “the names of qualified

citizens [are] drawn from a bag”. (Jurdjevic 2004: 609). This according to the scholars has

provided guard against “attendant evils of electioneering and party rivalry... [and] corruption”

(Jurdjevic 2004: 613-614). However, the opposite is true in the case of Iran; distrust in a long-

term scale has negative impact on the country‟s human capital index (Razmi and Bazzazan

2012).This gives raise to the idea that the different internal democratic character of civil itself

affects the degree of participation behaviour of the people (Lee and Glasure 2007; Inkeles 2000).

Socioeconomic Development and Social Capital

Framework 1. Frame of the recent body of body of knowledge

Framework 1 depicts that a number of papers that constitutes the recent body of

knowledge concerning social capital relate the concept to economic growth and development.

Scholars noted that social capital matters and can be used as predictive measures of economic

growth (Temple and Johnson 1998; Knack and Keefer 1997). Josten (2004) argues that the

society providing networks of trust and cooperation encourage long-run economic successes.

This is further supported by Correani, et al (2011) in stating that long-term economic growth has

owed its state to the effects advanced by cooperation. Economic arenas that essentially work

Socioeconomic

Development Social Capital

Social Development

Economic

Development


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within the framework of „learning by doing‟ and „spill over knowledge‟ will facilitate effective

level of a countries income with policies promoting cooperation and interaction among business

firms. The spread of cooperation in this manner facilitated that social capital is a useful resource

for growth.

However, the above framework (Framework 1) also shows that development does not

owe everything to economic factors. Scholars have also taken into account the effect of social

factors to development. In their article, Naguib and Smucker (2009) put forward Amartya Sen‟s

idea that economic development alone does not improve the quality of life. Furthermore,

development should include “expansion of human freedom to live the kind of lives that people

have reason to value” (Sen 1999: 295 in Naguib and Smucker (2009):110). Ahluwalia and

Hussain (2004) presented Bangladesh as a case in point. Bangladesh demonstrates a social

progress even low income level. This, according to their study, is a development provided by the

demand from the civil society that led the government to work creating policies from issues at

hand—and this constitutes to social development.

Framework 2. Alternative Framework

Given this current state of knowledge on the appreciation of determining the effect of

social capital to be more focused on economic development, Framework 2 shows the alternative

framework that the study will work on. The paper aims to provide an analysis of how the norms

of trust and cooperation work within the political sphere and potentially provides socioeconomic

development.

METHODS

Socioeconomic

Development

Social

Capital

Social

Development

Economic

Development


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The measures and estimates in this study are based on the ordinary least squares model or

OLS model that is relatively appropriate for “estimating the parameters appearing in the

conditional mean function (Wooldridge 2009: 32)”. The paper uses a quadratic model to

understand the extent at which social capital increases or decreases the rate of socioeconomic

development. The constructed model is shown below.

𝐻𝐷𝐼 = β0 + β1ave + β2lit + β3press + β4demo + β5elec + β6ave2 - β7press*elec + β8gdp + µ

Graphs explaining the relationship of the variables of presented to depict the effects of

the independent ones. These graphs were generated from Stata 13, where the model is also

regressed.

Variables

For this paper, the dependent variable is an indicator of the level of socioeconomic

development—which is the Human Development Index (or HDI). Based on the definition

presented by the United Nations Development Programme (or UNDP), HDI is a measure that

focuses on three categories, namely: mean years of schooling, Gross National Income (or GNI),

and life expectancy at birth.

Average voters‟ turnout (or ave, as it is represented in the model), representing the

measure of social capital, is the main independent variable in the model. Voters‟ turnout is the

ratio of the number of people who voted in a certain election year to the number of registered

voters. The average value is measured based on the quotient between the total voters‟ turnout

every election and the number of elections held since 1998. Getting the average voters‟ turnout

lies on the rationale that election varies in time interval each country. In addition year 1998 is not

chosen but reflects the database of ElectionGuide, the main source2of data for voters‟ turnout.

Literacy rate (or lit, based on the model) is measured based various databases. The index

follows the definition provided by the World Bank. According to the description of the indicator,

2Average voters’ turnout is based on another source which is the International IDEA: International Institute for Democracy and Electoral Assistance.


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literacy rate is the percentage of adult population (15 years of age and above) who can read and

write with necessary understanding about the subject matter. Literacy measure also includes

one‟s ability on dealing with numbers. On the other hand, press freedom (or press as it is

indicated in the model) is measured by the degree information about political and social issue is

distributed to the people reflecting the freedom that journalists, reporters, and newspapers

publications enjoy and the government‟s means to respect and secure this freedom (World Press

Freedom 2014). This is done by incorporating the restrictions given to the mass media that is

formulated by the government. In this case the data sources for this variable, both World Press

Freedom and Freedom House index provides measures on determining the level of press

freedom.

The level of democracy (or demo as it is seen in the model) is treated as a categorical

variable that grouped the countries into not free, partly free, and free based on how the Freedom

House classified the level of democracy in each country. The measure of number of elections is

consistent with the sources of average voters‟ turnout and its base year settling at 1998.

To highlight the economic factor as part of development measure, the model includes a

measure of economic growth using Gross National Product (or GDP) as a controlled variable.

RESULTS

Socioeconomic development measured by the Human Development Index (HDI) is

represented by 187 out of 188 countries subject to the study. The scores range from 33.7 to 96.1

with the mean and median of 68.22 and 71.5 respectively. This, in effect, shows that the values a

well-distributed and outliers exists at a remarkably minimal level.

As a measure of social capital, average voters‟ turnout from the data of 187 countries

shows more distributed values with the mean of 67.43 and a median of 67.33. It has shown that

there countries with 0 voter turnout suggesting no elections is held. In contrary, there are

countries with voters‟ turnout of more than 100% reflecting that the number of people who voted

in the election exceeded the number of registered voters. This made the average voters‟ turnout

to set its maximum value at 151.79.


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Gross Domestic Product (GDP) presented in the ratio of 1: 1 000 000 has its smallest

value at 0.038 (or 38 000) and highest value at 16, 768.1 (or 16 768 100 000). Contrary to the

other variables, the mean value of GDP which 421.68 is far from its median of 42.25.Literacy

rate, on the other hand, does not pose value distribution to the degree that GDP does. It settles at

83.76 and 92.9 for the value of its mean and median respectively. Countries with highest literacy

rate have shown that the whole adult population are literate. However, there are still countries

with low literacy level suggested by the minimum value of 25.3 %.Another control variable is

the freedom of the press. The country with the lowest level of freedom has score of 84.83 while

the country with a score of 6.38 enjoys the highest form of press freedom. The scores set the

average level of freedom at 31.1 and the 50 % percentile at 28.35.

The level of democracy shows that 47 countries are not free, 54 are partially free, and 86

are free. Lastly, the number of election held in a country settles at 8.6 and 8 corresponding to its

average and 50 % percentile value. The least number of elections, supporting the average voters‟

turnout, is at 0 while the most is 22.

DISCUSSION

Table1 appears to tell that model (5), with an explanatory power of 76.1 %, is the best model to

describe the relationship between social and socioeconomic growth. It has presented the average voters‟

turnout, as the measure of social capital, to be a necessary explanatory factor for the dependent variable at

the 95% significance level. Although, the table does not account for it, the other 4 models hold average

voters‟ turnout at 90 % significance level. This implies that the interaction between the press freedom and

the number of elections has a confounding effect on average voter‟s turnout.

Based on Graph1 presented below, given the quadratic model with consideration of its tipping

point, average voters‟ turnout has positive impact on socioeconomic development. The data shows that

the main independent variable has its vertex at 79.375 %, where the country is at its minimum level of

development (shown by the white dot on Graph 1). Below and above this value further increases the level

of socioeconomic development.

Lower level of socioeconomic development provided by higher voters‟ turnout, suggests

that the government, being well-informed and highly-effective, can make its way towards

development with lesser influence of the public. In this sense, the trust and cooperation between

the state and its people is not a driving force for a government that can stand alone. However, the


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results also approves off Cheng and Mittelhammer‟s (2008) argument on the formation of

government social capital that is “defined as the values of law at the national level” (p. 864).

TABLE1. Regression Table for Socioeconomic Development

(1) (2) (3) (4) (5)

Human

Development

Score

(multiplied by 100)

Human

Development

Score

(multiplied by 100)

Human

Development

Score

(multiplied by 100)

Human

Development

Score

(multiplied by 100)

Human

Development

Score

(multiplied by 100)

Average Voters

Turnout based on Index used (%)

-0.0232

(0.143)

-0.185

(0.106)

-0.201

(0.113)

-0.215

(0.112)

-0.254*

(0.106)

Squared value of

average voters turnout based on index used

(%)

0.0000300(0.

000881)

0.00108

(0.000673)

0.00121

(0.000712)

0.00136

(0.000698)

0.00160*

(0.000669)

Gross Domestic Product 2013 divided

by million dollars

0.00115* (0.000423)

0.00107* (0.000376)

0.00100* (0.000362)

0.000935* (0.000369)

0.00101** (0.000383)

Latest recorded

literacy rate (%)

0.677***

(0.0349)

0.635***

(0.0331)

0.621***

(0.0323)

0.619***

(0.0327)

0.620***

(0.0329)

Information

accumulation based on mass media freedom

(lower score=more

free)

-0.242***

(0.0455)

-0.192***

(0.0563)

-0.191***

(0.0562)

-0.253***

(0.0745)

Level of democracy 1.876 (0.994)

1.760 (0.999)

1.724 (0.969)

Number of elections

held

0.0998

(0.0863)

-0.101

(0.208)

Information

accumulation based on mass media freedom

(lower score=more

free) in relation to

number of elections held

0.00762

(0.00751)

Constant 12.30

(6.324)

28.90***

(5.471)

26.78***

(5.841)

26.50***

(5.904)

29.60***

(5.731)

r2 0.704 0.752 0.758 0.759 0.761

N 183 183 183 183 183


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Standard errors in parentheses

* p<0.05, ** p<0.01, *** p<0.001

This further testifies that social capital can work within the bureaucratic effectiveness and

cooperation among politicians in order to promote development contrary to the rejection made

by Tavits (2006) and Koop &Schyns (2010).

GRAPH1. Human Development Index and Average Voters‟ Turnout

However, the other phenomenon approves of Tavits (2006) and Koop &Schyns (2010)

argument that social capital can create pressures to the government brought about by the society.

This pressure can be the force to accelerate growth and development in a country. The graph

suggests that the greater level of socioeconomic development, above the vertex point of Graph 1,

is provided by the higher level of social capital based on the public‟s trust and cooperation with

the state.

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0 50 100 150Average Voters Turnout based on Index used (%)

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Fitted values


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The data implies that other control variables have significant effect and provided support

to the affirmative relationship of social capital and development. Graph 2, shown above, depicts

that rising level literacy rate boost up the country‟s level of development. This suggests that the

literate population of a certain country can provide the means to enhance socioeconomic

relationship. This also reflects the scholars point in arguing that literate and illiterate population

has the same power relation with the rich and the poor (Wallendorf 2001; Inquai 1969;

Roucek1967). This shows that countries with highly (or completely) literate population achieves

higher level of development while countries with low literacy rates either remains

underdeveloped or has lower level of socioeconomic development.

GRAPH2. Human Development Index and Literacy

Despite the negative value of its coefficient, press freedom is still a good social capital

indicator supports the hypothesis (Temple and Johnson 1998). This is because data is presented

showing lower score from the index is reflective of higher level of freedom that the mass media

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enjoys. Thus, press freedom is positively related to development. Graph 3 suggests that a more

informed public can make better assessment of the government and provide better quality of

social capital that will encourage growth. However, Graph 3 also shows that there

socioeconomically developed countries with less free mass media. In relation to the factors in

determining socioeconomic development, the result implies that the negative effect of social

capital is eliminated by the economic factors behind socioeconomic development.

GRAPH3. Human Development Index and Press freedom

Surprisingly, the level of democracy is insignificant in explaining socioeconomic

development. This statistical data suggests that the level of democracy is a less evident measure

of indentifying the level of social capital. But then, the regression table shows that it has a

confounding effect on average voters‟ turnout. This result suggests that level of democracy

provides the arena at which the level of voters‟ turnout can create a less effective or more

effective social capital. In addition, this can mean that “free” countries can achieve better

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0 20 40 60 80Information accumulation based on mass media freedom (lower score=more free)


Fitted values


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working social capital reflected in its voters‟ turnout while the opposite scenario may occur in

countries that classified as “not free”.

GRAPH4. Press freedom and Number of elections

The number of elections is also shown as insignificant. However, upon the interaction

between this variable and the press freedom, the joint test proves that the combined explanatory

power of the two variables is essentially significant. Graph 4 shows that greater number of

elections means a greater freedom of the press. This entails that the voice of the mass media

creates an avenue for reforms and re-election brought by unqualified and inefficient politicians.

Furthermore, this implies that the greater number of elections provides a basis for more active

participation of the mass media. This can also suggest that the greater chance of the people to

express themselves through elections reflects the similar freedom of the mass media to

disseminate social and political issues.

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gugui

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guha

hohu

ic

in

indir

irq

ire

is

it

ja

jap

jo

ka

ke

ki

ks

koku kyla lat

le

les

liblib

lit

lu

mac

mad

mal

maa masmaima

mar

mau

maus

me

mi

mo

moamon

mor

moz

my

na

ne

net

nz

ni

nig

niano

om

pa

pl

pan

png

par

perph

pol

porqa

ro

ru

rw

sa

sm

stp

sau

se serseysl

sg

sr

slo

si

so

saf

ssu

sp

sr

skn

slusvg

su

sur

sw

swe swi

swd

ta

tan

th

tl toton

tri

tun

tu

tur

tuv

ug

ukruae

ukr usaur

uz

va

ve

viye

za

zi

020

40

60

80

0 10 20 30Number of elections

Information accumulation based on mass media freedom (lower score=more free)95% CI

Fitted values

Information accumulation based on mass media freedom (lower score=more free) 95% Cl

Fitted Values


15 | P a g e

Lastly and not surprisingly, Gross Domestic Product (GDP), which gives emphasis to the

value of economic factors on measuring socioeconomic development, advances significant effect

on socioeconomic development.

SUMMARY AND CONCLUSION

The study is introduced with the hypothesis that voters‟ turnout, as an indicator of social

capital, drives socioeconomic development. However, the study also explores on the extent at

which social capital will increase socioeconomic development and at what point will it cause a

decline in development. Socioeconomic development is understood to be measured by social and

economic forces. However, the literature offered that economic development has the end goal of

providing social development. Thus, understanding of development holds that social and

economic factors come together. On the other hand, social capital is understood to have norms of

reciprocity, trust, cooperation, and civic engagement to be its building blocks (Putnam 1993:

170-74 in Tavits 2006: 212; Cheng and Mittelhammer 2008; Koop and Schyns 2010; Susilo and

Arsyad 2012). Even though the building blocks presented that social capital survived in a

societal sphere, the concept holds significant aspects contributing to the realm of politics.

Consequently, social capital can affect government performance or “[its] responsiveness to its

constituents and efficiency in conducting the public‟s business” (Putnam 1993: 63 in Tavits

2006: 211). Using a political lens, it show that social capital enhances administrative efficiency

by providing cooperation within the society to raise their demands and concerns (public goods

and services) to the government. In addition, it can also offer cooperation within the bureaucracy

to come up with necessary responses to different problems concerning the agency (Tavits 2006).

Before, providing results, the study suggests that the current body of knowledge holds

different perspective on how social capital, in the political realm, affects socioeconomic

development. The literature also builds the assumption that social capital may exists between

state and the people, on the other hand, trust and cooperation among the bureaucrats can provide

socioeconomic development. This assumption is supported by the results of the study. The data

suggest that, below the vertex point, trust and cooperation among the bureaucrats provides

development. Alternatively, above the vertex point, the norms of reciprocity and support of the

public to the state drives socioeconomic development. Another view of analyzing the effects of

social capital was provided by Odegard and Berglund (2008) through the concept of horizontal


16 | P a g e

and vertical trust. The data also implies that other indicators of social capital—literacy rate, press

freedom, and number elections—that are used as controls support the hypothesis of positive

relationship between socioeconomic development and social capital. Not, surprisingly, Gross

Domestic Product (GDP), which highlights the value of economic factors on measuring

socioeconomic development, also fosters significant effect on socioeconomic development.

The study recognizes that the social capital is a broad concept and is continually evolving

to become part of different spheres inside and out of the social realm. From this perspective,

future researches on the effects of social capital to socioeconomic growth. Accordingly, future

studies relatively similar on this topic can imply a longitudinal analysis of the relationship to

give particular essence to the concept of development.


17 | P a g e

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