We should take into account various factors when deciding the level to which social capital is to be strengthened—including declining population, aging of society, falling birthrates and the need to rebuild the nation’s state coffers. On an individual project level, whether or not each project is necessary should be decided by analyzing its cost-benefit ratio. On a regional or national level, policymakers should recognize the reality concerning the stock of social capital. Based on the recognition, they should study what extent the current stock should be raised in the future.
In this paper, I tried to grasp the situation of social capital (categorized into four types) based on Japan’s Social Capital 2012, published by the Cabinet Office. Using data pooled between 1990 and 2009, region-by-region and industry-by-industry productivity effects of social capital stock were estimated. Next, a simulation based on the Real Business Cycle (RBC) model was conducted, using a production function that reflects the productivity effects of social capital stock. The simulation was designed to confirm the possible percentage change in each variable when the ratio of government spending (public investment) against gross domestic product (GDP) rises by 1%.
What was found in the region-by-region and industry-by-industry survey is that regarding mining, manufacturing and service industries operating in urban areas, productivity effects were high at living-support infrastructure facilities (publicly-owned houses for rent, water-supply services, waste-disposal facilities, city parks and education facilities) and land-protection facilities (flood control, soil conservation and coastal facilities). The simulation using the RBC model led to a finding that when productivity effects of social capital exist, consumption will possibly rise, aided by positive income effects.
JEL Classification:E22, E23, H54
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