Social Institutions as a Form of Intangible Capital

Abstract

In recent years there has been growing interest in including estimates of "intangible‟ capital, such as knowledge, skills, and institutions, in national asset accounting. In accordance with these efforts, this paper attempts to provide the first worldwide evaluations of "social‟ institutions, understood as the norms and networks that reduce transaction costs and enable collective action, as a proportion of national wealth. Using a new dataset that combines over 200 items from 25 sources, a composite of indices – measuring inter-group cohesion, gender equity, the strength of local community, the extent of crime and interpersonal trust, and levels of civic engagement – is formed and used to explain variance in the intangible capital residual, the proportion of national income that is left over after physical and natural capital have been accounted for. We show that social institutions are one of the main components of national wealth and a major productive asset for societies and their constituent communities around the world.