Social Capital and Financial Development after Economic Shocks: Evidence from Italy after the Financial Crisis of 2007-2009

Abstract

Like traditional forms of capital, social capital – an intangible measure of an individual’s social networks, trust in institutions, and participation in civic life – has implications for personal and financial behavior. Individuals from educated, well-established backgrounds with fruitful family ties may be more amenable to opening new lines of credit or investing in stock markets due to their trust in and connectedness with society. But what happens after a major economic shock, such as the financial crisis of 2008? Using Italy as a case study and panel data from the Survey of Household Income and Wealth, we find that social capital has significant effects on an individual’s credit card usage, informal borrowing, and choice to invest in securities.