Does social capital really determine poverty? Evidence from a Cameroon household survey

Abstract

This paper examines the effect of social capital on household poverty using the 2007 Cameroon household survey. A social capital indicator is constructed using the polychoric principal components analysis method and econometric approaches are employed to correct for potential endogeneity and unobserved heterogeneity in a step-wise manner and simultaneously. The results provide empirical evidence that social capital is a multidimensional construct and relates positively to household welfare. Our analysis suggests that policy makers interested in improving the living conditions of households may consider promoting an enabling, friendly and peaceful society for the emergence of local organisations as a relevant ingredient for achieving the Millennium Development Goal of reducing poverty by half.

Keywords:

• Cameroon
• control function
• endogeneity
• poverty
• social capital

JEL classification:

• E22
• J24
• I30
• I38
• I39

Notes

1 According to the World Bank (2013), 42.8% of the population in sub-Saharan Africa still lives on less than 1.25$ a day in 2015, compared to 56% in 1990.

2 For a description of the PCA and polychoric PCA techniques (see Gifi 1990; Joreskog 2004; Kamanou 2005; Kolenikov and Angeles 2009; Olsson 1979).

3 Education is also identified as an endogenous variable and so will have reduced form equation too.