Social Capital and Performance in Transition.

The paper explores the impact of social capital on economic performance in the context of post-communist transition. Social capital is a concept that has been introduced to examine the potential benefits of norms, networks, and trust as the “missing link” that, together with physical and human capital, could explain the inequality in economic growth. The concept was widely adopted by transition scholars who wished to understand the relationship between markets and states and to explain why the accepted set of economic and political reforms achieved extremely diverse results across Eastern Europe. While the concept has been gaining wide popularity in transition and development scholarship, empirical studies of social capital have been missing. Also, the scholarship has not examined the relationship between social capital and performance despite suggestions of a symbiotic relationship. This study attempts to fill this void through an investigation of the impact of social capital on the security of property rights and capital reinvestment in transition economies. Original evidence collected through surveys of managers and owners of SMEs in Serbia and Montenegro is employed in a rare quantitative analysis of the role of social capital in the provision of informal means of contract enforcement. This alternative strategy for enhancing the security of one’s property rights is important in environments where formal property rights are not enforced because institutions lack legitimacy or where institutions are inefficient in implementing formal rules and regulations. This paper examines the impact of such strategies on the overall prospects for economic growth. ..PAT.-Unpublished Manuscript [ABSTRACT FROM AUTHOR]