Research Accomplishment Reports 2008

Impacts of Social Capital on the Economic Development and Well-Being of Rural Areas

D. L. Debertin
Department of Agricultural Economics

 

Non-Technical Summary

Perhaps the most fundamental of all questions in rural economic development is whether development strategies that focus directly on attracting jobs to a rural area come first, or whether a rural community should instead try to take the necessary steps to make day-to-day living in the community as attractive as possible. The basic hypothesis to be tested in this project is that the presence and amount of social capital influences the course of economic development in rural areas, with particular application to economic development within rural Kentucky. From a rural community policy perspective, the basic question this study will attempt to answer is "does social capital matter at all in influencing the course of rural economic development?" In particular, do communities that devote the greatest efforts toward making their locales nice places for people to live also improve their prospects for economic growth? If so, are there specific forms of social capital that communities should focus on as economic development strategy?

Project Description

Frightening events have taken place in the U.S. economy in the past 12 months, ranging from the failure of major banks and other financial institutions, rising debt, collapse of home values in many areas and the disintegration of the U.S. auto industry.

Surprisingly, however, rural areas in the U.S. have fared comparatively well relative to many urban areas. There are a number of reasons for this, many underappreciated even by those living in rural areas. My project focuses on the role of social capital that provides the "glue" that holds rural areas together, but this has suddenly and recently become a lot more complex.

1. Through all of this and despite recent comparative weakness, agricultural commodity prices have held up well despite the collapse in many other prices and the fear of deflation within the U.S. and world economy. To a significant degree, agricultural commodity prices remain the core that determines whether rural communities in farming-dependent regions are prosperous or not. The surprising strength of agricultural commodity prices has meant that rural areas in the past year have fared well relative to their urban counterparts.

2. Many agriculturally-dependent areas also depend on energy extraction for income, and once again, up until very recently at least, the markets for energy have been strong. A healthy energy market in combination with healthy agricultural economy prices tilts the tables in favor of rural over urban areas.

3. We sometimes forget that many rural areas and the people living there differ in very fundamental ways from those living in urban areas. The CEO of Tractor Supply, a publically-traded company whose business focuses on serving the needs of people in rural areas, recently summed up the situation his company faced by noting that rural people were less likely than urban people to take out large mortgages or in general engage in financially risky credit behaviors. The recent bubble in home prices followed by a big price collapse has largely been a phenomenon occurring in urban, not rural, areas. Furthermore, rural people still needed to "Feed their pets and corral their animals, both activities of significant importance to the balance sheet of Tractor Supply." Tractor Supply and its share price are doing fine in the face of general malaise in the retailing sector that is largely more heavily dependent on the well being of urban America. Houses in the vast majority of rural areas never appreciated at double digit rates in the first half of the decade, nor have they depreciated in a significant way more recently.

4. The social capital glue that binds rural areas together as cohesive units becomes even more valuable as urban economies throughout the world fall into collapse, and suggests more strongly than ever that while there are some similarities between Americans living in rural versus urban areas, there may be even more differences that we realized under ordinary times. The 2008 elections really divide the country into two major groups of people defined by being rural versus being urban, whereby rural people see their lives being shaped by very different forces than urban people.

Impact

A Ph.D. dissertation under the direction of the principal investigator is underway to analyze the linkages between varied measures of social capital and demographic data for Kentucky. Although studies like this have been conducted using county-level data, this analysis is unique and the first of its kind in that it utilizes data available for Kentucky at the Zip code level.

Zip code level data presents both opportunities and problems in the applied social sciences in that these data generally comprises much smaller and potentially more homogenous demographic information than do data extracted at the county level. Although demographics can vary widely within a county, there can still be significant variation within a Zip code, this variation will likely be much smaller than for an entire county. Second, in a cross-sectional study for a state such as Kentucky, depending on the selection of Zip codes to be included for study (rural Zip codes, urban Zip codes or both) there will be over 700 observations as opposed to the maximum 120 cross-sectional observations that would be employed using all Kentucky counties, both urban and rural. From a statistical perspective, the combination of many more observations with greater homogeneity should lead to better, more meaningful hypothesis testing. Particularly in largely rural areas, Zip codes can be quite tiny in population even if they cover a fairly large geographic area because every post office, no matter how small the town, is assigned a unique Zip code.

It is sometimes believed that the amount of social capital in a particular geographic region (such as a Zip code in our study) would vary with simple measures of family income but this is not necessarily true. High-income gated communities, for example, may measure rather low, based on traditional social capital indicators. Conversely, some low income areas may possess high social capital. Further complexities are introduced with the introduction of non-geographic or semi-geographic social capital. To illustrate a practical issue for our study, a specific service club such as a local Kiwanis or Rotary might not necessarily draw its entire membership from a single Zip code, even though the club may regularly meet within that Zip code.

Since the study is currently underway there are not yet statistical results to report. However the anticipated results, first, should give us a clearer understanding of how social capital varies across much smaller geographic regions (Zip codes) than we have known from statistical studies that in the past employed county-level data. Second, we will be able to determine whether or not by employing the Zip code level data whether the results linking social capital measures to demographics are improved relative to the results that have been obtained in the past employing county level data.