The simultaneity of social infrastructure spending, social capital and economic development in Ukraine

Abstract

This chapter analyzes the relationships between economic growth, social infrastructure expenditure, and several dimensions of social capital (interpersonal trust, institutional trust, and participation) across 25 Ukrainian regions from 2006 to 2020. Given the potential endogeneity concerns highlighted in prior research regarding these variables, a Simultaneous Equations Model is employed to address their interdependent nature. The findings affirm significant interdependence between economic growth and social infrastructure expenditure, social infrastructure expenditure and participation, social infrastructure expenditure and institutional trust, as well as participation and interpersonal trust. These simultaneities create feedback loops, where social infrastructure expenditure, for instance, strengthens a region's social capital, subsequently further boosting social infrastructure expenditure. This dynamic can particularly pose challenges for regions already lagging behind, making it harder for them to promote either dimension. The results emphasize the need for tailored policies, not only relevant for Ukraine but also for other countries, especially those undergoing social or economic transformations or being characterized by regional disparities in social capital.