Impact of the Internet Usage on Social Capital and the Consequences of This Impact for Economic Growth

Introduction

Several economists and researchers in the past have predominately focussed on natural capital, human capital and physical capital as major determinants influencing the economic growth (Salahuddin et al., 2015; Iyer et al. 2005). Notably, a plethora of research studies has been conducted in the past examining this relationship. Though the scholars in the past have concentrated on these three broad types of capital in the process of driving economic growth but have failed to recognise how these different types of economic factors interact. Nevertheless, in the recent times, economists have identified this missing factor associated with the economic growth process, which they have termed as social capital (Iyer et al. 2005). In this regard, the term ‘social capital’ is claimed to be first used by L. J. Hanifan to explain the importance of social structure, and social culture and norms within the domain of business and economies (Putnam 2000).

Notwithstanding, the rise of the internet is further said to have significantly affected the lives of people across the world. Besides, the unprecedented growth in the numbers of internet users is also argued to have widespread implication on the economic growth and development (Quan-Haase & Wellman, 2002). In the recent times, with the development of social networking sites, many scholars have started to link the internet, particularly social networking sites such as Facebook, LinkedIn and Twitter with the formation of social capital (Noor Al-Deen & Hendricks, 2012; Valenzuela, et al. 2009). In this regard, Salahuddin et al. (2015) claimed that social capital is both positively and negatively influenced by the internet. Against this backdrop, it has become essential to analyse and evaluate the impact of the internet usage on social capital and the consequences of this impact for economic growth.

Social Capital and Economic Growth

Over the years, economists have revealed their firm interest in exploring and examining the impact of social capital on economic growth and development. In this regard, the ground-breaking works of several scholars like Mankiw et al. (1992); Barro (1991); Kormendi & Meguire (1985) have been largely focussed on examining the role of social structure and culture in influencing the economic performance. Nevertheless, for a long time, the role of social capital in driving economic growth was subject to several criticisms, particularly due to the lack of any specific tools and methods to measure the role of social

capital. After years of arguments and contentions, social capital today is recognised as an important contributor to economic growth and development. In line with the statement, scholars have emphatically proven the impact of social capital on the economic growth. Evidently, in an empirical study conducted by Putnam et al. (1993), which investigated the relationship between social capital and economic development in Italian regions, it was found that variation in the social capital immensely contributes to the inconsistency in the economic performance. In this study, the authors argued that countries with higher level of social capital are more likely to avail higher economic growth than those countries with low level of social capital. This argument propounded by Putnam et al. (1993) was further supported several other by eminent scholars like Ostrom (2000); Rose, 2000); Fukuyama (1995) who argued that social capital is an important factor for attaining economic success. In a similar empirical study, Zak & Knack (2001) examined the impact of ‘interpersonal trust’ and ‘institutional strength’ on economic performance using the data compiled from 41 different countries. The outcome of this study demonstrated that interpersonal trust is positively related to the economic growth. The findings obtained by Zak & Knack (2001) was further verified and proven in an empirical study conducted by Ahlerup et al. (2009). Thus, the above review clearly postulates that the social capital is positively related to the economic growth and development. Nevertheless, the rise of the internet is further ascertained to have contributed to the emergence of debate regarding the social capital and economic growth. Correspondingly, the subsequent section presents the relationship between the internet usage and social capital and their impact on the economic growth.

Internet Use and Social Capital

Wellman et al. (2001) claimed that there had been constant debate regarding the potential effect of Internet on social capital. The advent of the internet has brought positive changes in the lives of people by paving new ways for online interaction as well as strengthening the offline relationship. The use of the internet can be further claimed to have offered people with the common platform where people sharing common interest come together to interact and exchange information on various aspects, which is viewed to have contributed towards overcoming the limitations associated with time and space ((Salahuddin et al., 2015). In the similar context, Quan-Haase & Wellman (2002) argued that the internet has offered online communities with the ability to promote democratic discourse as well as enabled them to mobilise shared action. The use of internet has not only promoted the formation of online interaction and relationship, but it is also argued to have promoted the physical interaction and relationship. Online interaction over the network can also be ascertained to eliminate the communication gap on face-face meetings. On a further note, the internet has strengthened social ties among the people both online and offline (Wellman et al. 2001). Also, it can be argued that the internet has not only offered the people in the society with low-cost medium of communication and interaction, but it has also increased the rate of in-person communication as well as communication over the telephone. Other than offering expensive and convenient means of communication solution with people in far-flung geographic locations, internet can also be argued to have contributed towards significant alteration in the social contacts as well as in civic engagement away from traditional group based commonalities towards more dispersed interest based social networks (Quan-Haase & Wellman (2002; Wellman et al. 2001).

The frequent contact facilitated by the internet is further recognised to have a positive impact on fostering a relationship. The Internet can also be identified to promote the organisation’s involvement by facilitating information flow (Wellman et al. 2001). The civic engagement as a result of internet communication and interaction is further believed to contribute towards building trust among the virtual communities (Warren et al. 2014). Nevertheless, such outcome can be argued to largely rely on the on the type of the social obligations and the networks with which individual is associated. Besides, the Internet is also identified to positively influence individual’s social inclusion as well as the collective social capital of the community (Quan-Haase & Wellman, 2002; Wellman et al. 2001).

In a study conducted by James et al. (2001), it has been concluded that individuals that are active users of the internet are more likely to be associated with voluntary organisations. Also, these users are claimed to have bigger social network compared to recent users or non-users of Internet. Moreover, the exponential rise in the usage of social media particular the social networking sites such as Facebook and Twitter and LinkedIn can be further argued to have a profound impact on the social capital formation (Noor Al-Deen & Hendricks, 2012). In this regard, trust is claimed to be one of the important perquisites for building a long-term relationship. Correspondingly, social networking sites like Facebook are argued to facilitate in greater trust which in turn is anticipated to contribute towards increased involvement in civic activities (Valenzuela, et al. 2009).

Based on the above evaluation and evidence, it would, therefore, be fair to state that the internet usage contributes towards the generation of social capital (Lippert & Spagnolo, 2011; Meredyth et al. 2004; Fernback 2005). However, it is worth to note that the internet may not always have a positive impact on social capital. In certain circumstances, the internet can lead to separation of communication which can result in community fragmentation (Bauernschuster et al. 2014; Gentzkow & Shapiro, 2011).

Impact of Online Social Capital on Economic Growth

The above discussion offered a clear picture regarding the role of the internet in the formation of social capital. At the same time, several researchers in the past have articulated the positive effect of social capital on economic growth and development. It is thus crucial to examine whether online social capital has similar impact on the economic growth and development. In this regard, the pool of economists and scholars claimed that e-commerce activities are firmly associated with the economic growth and development (Chaudhuri & Kumar, 2015; Debbarma & Nandi, 2014). In this context, it can be argued that the trust plays an important role while engaging in any transaction. Correspondingly, many marketing experts have articulated trust as a vital criterion that contributes towards the development of the relationship between individual-to-individual and individual-to-organisation. Notably, e-commerce activities can be argued to be strongly related with significant uncertainties compared to the offline transaction. In such circumstances, trust becomes even more crucial for customers to engage in the online transaction. Such behaviour of customers can be argued to be predominately related to their inability to engage in-person communication with the e-commerce vendors/organisation (Dutta & Bhat, 2015).

In this context, the internet interaction that contributes towards the formation of trust can be argued to facilitate in the dissemination of various information related to brand and stores which promote trust among the online communities and motivates them to engage in an e-commerce transaction, which in turn likely contributes towards the economic growth and development. In addition, enhanced level of trust between those connected to the internet is also argued to promote internet based transaction such as online retailing and shopping, while reducing the cost of transaction and complexity of exchanges, which is also viewed to have favourable impact on the economic growth (Grabner-Krauter, 2010; Dutta & Bhat, 2015). .

Knack & Philip (1998) conducted a quantitative study investigating the role of social capital on economic growth. In this stud, it was found that countries that enjoy a higher degree of trust are more likely to better financial institutions and are likely to have a stable financial system. Besides, the higher degree of trust is also argued to contribute towards the generation of a greater level of confidence in the market. Correspondingly, such arrangement is further anticipated to contribute towards economic growth by promoting investments positively. Since online social capital is associated with the greater level of trust than the traditional or offline social network; it can be argued that online social capital has the greater tendency to drive inflow/outflow of investments, which in turn can immensely benefit the economies in securing funds for economic growth and prosperity. Charleson (2013) further argued that use of the internet is more likely to reduce gaps associated with the digital divide between the socially disadvantaged rural population and those living in urban areas through increased social inclusion and community interaction.

Conclusion

To conclude, it has been observed that over the years, economists have largely been focussed on three major economic actors’ namely human capital, physical capital and natural capital as a driver of economic growth while the social factor was largely ignored. Nevertheless, in the recent time, economists are ascertained to have recognised the role and importance of social capital in the economic success. With the advent of the internet and its widespread use is further recognised to revolutionise the lives of people across the world. At the same time, the growing use of the internet for communication and interaction purposes have further led to the emergence of debate regarding its impact on the social capital about sphere of economic growth and development. Correspondingly, it has been observed that the internet promote democratic discourse as well as it enables the virtual community to mobilise shared action. The Internet is further ascertained to strengthen social ties among the people both online and offline and more importantly it is recognised to fortify trust among members within the social network. Correspondingly, this trust is identified to motivate members in the social network to engage in an e-commerce transaction, which is argued to be strongly related to the

economic growth and development. Besides, increased level of trust due to the internet interaction is further ascertained to generate a greater level of confidence in the market which in turn is argued to promote investment necessary for driving the economic growth. To sum up, it can be firmly argued that use of the internet have a profound impact on social capital formation which in turn has the potential to drive economic growth and development.

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