Social Capital and Financial Development: New Evidences from Iran (1983-2012)

The aim of this paper is to examine the causal relationship between social capital and financial development in Iran emphasizing long-run relations during 1983-2012. To do so, we used the number of annual judicial cases in public courts per thousand individuals as an inverse indicator of social capital and the ratio of bank claims on the private sector to nominal GDP to measure financial development. Then we applied Vector Error Correction Model to estimate the proposed model. The results show that the inverse indicator of social capital has a negatively significant impact on financial development and there is a one-way causal relationship from social capital to financial development in Iran during the observation period.