Social Capital Emerges as Key Driver of Local Economic Transformation

The OECD report highlights social capital trust, networks, and civic engagement as a key driver of local economic growth, resilience, and quality of life. It calls for better, comparable local-level measurement to help policymakers design more effective, inclusive place-based development strategies.

In the quiet rhythms of everyday life, from neighbours helping each other to citizens trusting public institutions, lies a powerful force shaping the future of cities and regions. A new OECD study highlights this force, known as social capital, as a key driver of local transformation. Produced by the OECD Centre for Entrepreneurship, SMEs, Regions and Cities, with support from the UK’s Economic and Social Research Council and UK Research and Innovation, the report argues that development is not just about infrastructure or investment. It is also about how people connect, cooperate and build trust within their communities.

What Exactly Is Social Capital?

Social capital refers to the networks, relationships and shared values that help people work together. It includes trust between individuals, confidence in institutions, participation in community activities and the strength of social connections. Unlike physical infrastructure, social capital is built through everyday interactions and shared experiences. It is deeply rooted in place, shaped by local culture, geography and institutions. When people trust each other and engage actively in their communities, they are more likely to collaborate, solve problems and support collective goals.

Why It Matters for Local Economies

The OECD report shows that social capital plays a major role in economic development. Strong networks help people find jobs through informal connections, making labour markets more efficient. Trust encourages entrepreneurship by reducing risks and making it easier to collaborate and invest. Communities where people interact across different social groups often see higher innovation, as diverse ideas come together.

Social capital also strengthens resilience. During economic shocks, natural disasters or crises like the pandemic, communities with strong trust and cooperation respond more effectively. They can mobilise resources quickly, support vulnerable groups and adapt to change. In this sense, social capital acts as a safety net that helps regions recover and move forward.

Not Always a Positive Force

While social capital has many benefits, the report cautions that it is not always positive. Strong ties within close groups can sometimes lead to exclusion, where outsiders are left out of opportunities. In some cases, tightly knit networks may resist change, slowing down economic or social progress. There is also a risk that strong internal trust can enable harmful behaviours such as misinformation or corruption.

This means that the impact of social capital depends on how it is structured. Connections that bring different groups together and link citizens with institutions tend to be more beneficial than those that remain closed and inward-looking.

The Challenge of Measuring It

One of the biggest issues policymakers face is how to measure social capital. Existing data is limited and often inconsistent. National surveys provide useful insights but are difficult to compare across countries. Global datasets, on the other hand, lack the local detail needed to understand what is happening in specific regions or cities.

To address this gap, the OECD proposes a new framework that focuses on four key areas: trust and shared values, confidence in institutions, civic participation and social connections. The idea is to combine people’s perceptions with real behaviours, such as voting or volunteering, to get a clearer picture.

The report also highlights the potential of new data sources, including digital platforms and administrative records, to improve measurement. However, these come with challenges such as privacy concerns and possible biases, meaning they should complement, not replace, traditional surveys.

Rethinking Development for the Future

At its core, the OECD study calls for a shift in how development is understood. Economic growth is not driven by infrastructure alone. The strength of relationships within a community plays an equally important role. By better understanding and measuring social capital, governments can design policies that are more inclusive, resilient and effective.

As regions face growing challenges from economic change to climate pressures, the ability of people to trust, cooperate and act together will become increasingly important. The report makes it clear that the future of places will depend not only on what is built, but on the strength of the social bonds that hold communities together.