JICA Research Institute

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Working Papers

No.3 Social Capital Formation in an Imperfect Credit Market —Evidence from Sri Lanka—

This study uses a unique long panel dataset from Sri Lanka to examine the mechanism of social capital formation in an imperfect credit market. The authors show that households in the face of credit constraints reduce the time allocation for social capital investment, such as participation in community works. The paper also finds that temporal declines in social capital investment persistently reduce the level of trust in the community. These findings imply the existence of a poverty trap, because the absence of a credit market access generates poor social capital which, in turn, leads to poor access to the informal credit market, causing further credit constraints.

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