Do Spanish Associations Matter for Economic Exchange? a Transnational Social Capital Perspective
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Do Spanish Associations matter for Economic Exchange? A transnational Social Capital perspective Ana Lucia Abelianskya∗ a) University of G¨ottingen Department of Economics Platz der G¨ottingerSieben 3 37073 G¨ottingen, Germany email: [email protected] Abstract This paper aims to investigate how Spanish associations, as a measure of transna- tional social capital and a true measure of people actually interacting, affect economic exchange understood as outward and inward Foreign Direct Investment (FDI) and international trade. In a world of information asymmetries and contract incomplete- ness, Spanish associations serve as a mean to diminish these barriers especially for FDI for which these barriers matter the most. This is especially due to the long-term horizon of FDI. No effect is found for trade, where transactions can be suspended in the short/medium term in case of contract violations. An augmented gravity model is employed to test this hypothesis in a cross section for 2010, and results are robust to the inclusion of different controls. JEL classification: F14, F19, F23, F29. Keywords: Transnational Social Capital, Foreign Direct Investment, Spain, Interna- tional Trade. ∗I would like to thank Carl-Johan Dalgaard, Inmaculada Mart´ınez-Zarzoso, Holger Strulik and the participants from the internal seminar of the Chair of Macroeconomics and Development from the Universiy of G¨ottingen,as well as from GLAD Workshop and the XV G¨ottinger Workshop of International Economics for valuable comments and suggestions. Special thanks to Florencia Correa for the support while collecting information across different libraries in Barcelona. 1 \Las asociaciones de inmigrantes son tan necesarias que si no existieran habr´ıaque inventarlas/ Immigrant associations are so necessary that if they would not exist, they should be invented" | Swedish Immigration Minister at a meeting of European Immigration Ministers(1980), (Fern´andezAsperilla, 2011) 1 Introduction There is a growing literature on the impact of culture on different economic outcomes. Culture can be understood as trust (Guiso et al., 2009), as social capital (Putnam et al., 1994; Peir´o-Palomino and Tortosa-Ausina, 2015; Tabellini, 2010) or as transnational so- cial capital (Murat et al., 2011). It has been found to have a positive effect on economic exchange which includes international trade, foreign direct investment (FDI) and financial flows (Guiso et al., 2009); economic growth (Tabellini, 2010; Putnam et al., 1994; Beugels- dijk and Van Schaik, 2005; Peir´o-Palomino and Tortosa-Ausina, 2015; Knack and Keefer, 1997)1 and FDI (Murat et al., 2011). In this paper we will follow the definition and perspective of Murat et al. (2011) to study the Spanish associativity (measured by cultural associations) on economic exchange (FDI and international trade). Spanish associations can be perceived as a measure of transnational social capital defined as \shared customary values and beliefs of emigrant communities that (··· ) enable members to act together more effectively" (Murat et al., 2011, p. 3). Combining this definition with the one from Guiso et al. (2009). we can think of values and beliefs that are shared by groups { either social or religious { that are passed on to the next generations that help group members to perform together in a more effective manner, while in the quest for common goals. Furthermore, by considering the definition of social capital, as defined in Putnam et al. (1994) as a combination of social trust, norms of reciprocity and networks of civic engagement, we can accordingly highlight the importance of the associations. From the definition of Putnam et al. (1994) we focus on the \networks of civic engagement". Others such as Beugelsdijk and Van Schaik (2005) and Murat et al. (2011) have also focused on this characteristic of societies and its impact on economic outcomes, based on the Putnam et al. (1994) hypothesis. The networks of civil engagement are of particular interest since they raise the prospective costs to a non-complier, encourage norms of reciprocity and ease communication, \improve the flow of information about trustworthiness of individ- uals and embody past success at collaboration, which can serve as a culturally defined template for future collaboration" (Putnam et al., 1994, p. 174). Associations foster these characteristics and therefore are expected to enhance trade and FDI. This is especially expected for FDI, since making a decision to invest abroad implies a medium-long term commitment given that investments require substantial start-up costs. Moreover, cooper- ation and commitment are needed in order to make investments \work". As Moya and Mu~noz(2011) also remark, people involved in associations received social pressure in or- 1Only for the components of trust and civic cooperation of Putnam's measure of social capital were found to have a positive effect. 2 der to avoid opportunistic behavior. This mechanism was also complimented with some institutional development when associations became larger in size. In this study we analyze the phenomenon of the Spanish associativity in foreign coun- tries, combining the study of associations with the social capital perspective in the context of economic outcomes, specifically FDI and international trade. The paper of Baghdadi and Cheptea (2010) also analyzes the effect of associations without stressing the cultural aspect and also does not concentrate on a specific country, but on associations from dif- ferent countries within France. Our results contribute to the literature by showing the importance of Spanish associations for FDI, though unlike Baghdadi and Cheptea (2010) we found no statistically significant relationship for trade flows. The paper is structured as follows. In Section 2 a description of the Spanish associa- tivity phenomenon is provided. It is followed by an explanation of why these associations matter for the economic outcomes under analysis (Section 3) and a selected literature review of the existent studies (Section 4). Section 5 includes the empirical strategy and subsequently the results of the empirical model are presented (Section 6). Finally, a con- clusion is provided and further research is outlined. 2 Description of the Spanish Associativity As N´u~nezSeixas (2011) notes, the Spanish associative phenomenon can be traced back to the colonization ´epoque with the first waves of migration. Nevertheless, the most distinct stage of Spanish associativity came after the two big waves of Spanish emigration. The first one relates mainly to Latin American countries between 1880-1930 and the second one is more related to European countries between 1950-1970. The reasons that characterize these two waves of migration are different. Overall, the first one could be illustrated by the quest for a \better life" in terms of better employment opportunities, mainly in countries that were just starting to take off (like the case of Argentina), while the second one was related to the \Franquismo" in Spain (Fern´andez Asperilla, 2011) and was mainly to Germany and Switzerland, where there was a special regime \Gastarbeit" that allowed the Spanish people to work in these countries (Gerrand, 2008). Associations can therefore be seen as the result of a formalization process of informal social networks (N´u~nez Seixas, 2011). It is because of this reason that associations account for actual interactions. Furthermore, as N´u~nezSeixas (2011) remarks, immigrants had the option to join an association or not: while the former option was a way to be in contact with people who shared the same roots and could be seen as a process of social insertion into the new location, the latter meant that they would find their way on their own in the new country and that memories would be shared within their microsocial networks with activities like cooking, for example. As the cited author states, associations were also comprised not only of immigrants but also their families and friends that were interested in the culture. Moya and Mu~noz(2011) highlight the importance of associations as a means of pre- 3 serving and generating ties with the home country, and that members were usually con- tinuously involved in them. It was also stated that these associations were also a vehicle to support and generate new civic projects in the homeland. Moreover, these associations (as also mentioned by N´u~nezSeixas (2011)) were at the same time a venue where people could interact by meeting, playing, talking, etc. Most of the early associations started in order to help fellow migrants with the burdens of settling in a new country, plus trying to keep the culture alive and represent the interests of the migrants. As N´u~nezSeixas (2011) states, the functionality of the associations has evolved over time and one cannot study them from a static perspective (therefore, the names do not exactly represent their functionality of nowadays). Before they could have been given names denoting that their main purpose was to provide help to the needed (\Asociaci´onde Socorro Mutuo"/ Mutual Relief Association), for example, but despite keeping the names nowadays, that is not their main task anymore. Therefore, not all the names denote their main functionality. Over time the relationship between associations and the government became institu- tionalized { they adopted a legal status and were officially recognized by the government. Additionally, the national Spanish Government even has programs that fund the associa- tions. The \Programa de Asociaciones"/Associations' Program helps by financing current expenditures and others related to infrastructure, according to the official website of the Ministry of Employment and Social Security. The financial disbursement is of a minimum of 5% of the presented budget when applying for the subsidy and a maximum of 30% for current expenses and related to infrastructure of up to 95% of the estimated budget for this field of expenses. The \Program size" should be of at least of 500 Euros, with a total of 400,000 Euros allocated in 2012.