Can Social Capital Reduce Poverty? A Study of Rural Households in Eastern Bhutan

• Date: 01 September 2015
• DOI: http://doi.org/10.1111/asej.12057
• Author: Kaoru Natsuda,Galey Tenzin,Kozo Otsuka
• Published date: 01 September 2015

Can Social Capital Reduce Poverty? A Study of

Rural Households in Eastern Bhutan*

Galey Tenzin, Kozo Otsuka and Kaoru Natsuda

Received 4 April 2014; accepted 26 May 2015

This study examines the impact of social capital on the poverty of rural households

in eastern Bhutan, with a particular focus on households’ participation in commu-

nity groups, which can be a proxy for the structural aspect of social capital. Using

a two-stage probit least squares simultaneous equation model, the present study

reveals that social capital positively contributes to poverty reduction in Bhutan.

This study also finds that non-farm income is important for poverty reduction in

rural areas. Our results, however, indicate that poor households in remote areas are

discouraged from participating in community groups.

Keywords: Bhutan, community groups, poverty reduction, social capital.

JEL Classification Codes: I3, C34, O53.

doi: 10.1111/asej.12057

I. Introduction

Can social capital reduce poverty? What makes households decide to participate

in community groups? The present paper attempts to answer these questions

by examining the impact of social capital on rural households in eastern

Bhutan.

Poverty reduction has been one of the primary development goals of Bhutan in

its pursuit of ‘Gross National Happiness (GNH)’. It seeks to broaden the conven-

tional notions of economic growth to include social and environmental factors

(GNHC, 2009). Over the past two decades, the Bhutanese economy has grown

rapidly, and, as a consequence, Bhutan has achieved an outstanding reduction in

the poverty rate, from 31.7 percent in 2003 to 12.0 percent in 2012 (GNHC,

2013). However, poverty is still very noticeable in rural areas, particularly in the

eastern districts of the country, and remains one of the biggest challenges in

Bhutan.

* Tenzin: Department of Agricultural Marketing and Cooperatives, Ministry of Agriculture and

Forests, Bhutan, Thongsel Lam, Lower Motithang, Thimphu, Bhutan. Otsuka: College of Interna-

tional Management, Ritsumeikan Asia Pacific University, Jumonjibaru 1-1, Beppu-shi, Oita 874-

8577, Japan. Natsuda (corresponding author): College of International Management, Ritsumeikan

Asia Pacific University, Beppu, Oita 874-8577, Japan. Email: natsuda@apu.ac.jp. The authors are

grateful to two anonymous referees for their valuable comments and also thank the Asian Develop-

ment Bank and Ritsumeikan Asia Pacific University for supporting this study.

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Although Bhutan has a long-standing tradition of cooperation through eco-

nomic and social institutions, the concept of social capital has traditionally not

been incorporated in formal policy (see NSB, 2013a). For instance, the Tenth Five

Year Plan (2008–2013) in Bhutan, highlighting five principal strategies focusing

on physical and human capital development, did not include the concept of social

capital (GNHC, 2009). However, in more recent years, policy implications related

to social capital have been acknowledged within the country. During his tenure,

the first democratically elected Prime Minister of Bhutan, Jigmi Y. Thinley

(2008–2013), called for an alternative development paradigm emphasizing social

capital in the country (e.g. Vidal, 2012; NSB, 2013a). Consequently, the Eleventh

Five Year Plan (2013–2018) focuses on social development as one of the strategic

areas,1identifying the importance of building social capital through formation of

self-help groups for mutual collaboration in poverty reduction of rural areas in

Bhutan (GNHC, 2013).

With regard to social capital in Bhutan, the Asian Development Bank (ADB)

and the National Statistics Bureau of Bhutan (NSB) claim that participating in

community groups can be considered as the structural dimension of social capital,

which leads to poverty reduction in rural areas of the country. They emphasize

that being a member of a community group can bring various benefits, such as

improved self-esteem and security for time of emergencies (ADB and NSB,

2013). In short, participation in community groups functions as social capital, as

it increases the access to various services, including education and health, which

leads to poverty reduction.

Considering the substantial difference in levels of poverty between rural and

urban areas, considering the rural poverty in relation to social capital and other

critical factors is important for tackling poverty reduction in Bhutan. Using data

from the Bhutan Living Standards Survey (BLSS) 2012, the present study exam-

ines the impact of social capital on poverty, and considers the determinants of

people’s decision to join groups or social organizations.2The study focuses on the

eastern part of Bhutan where the rate of poverty is the highest. This paper is

organized as follows. Section II sets out the theoretical concept of social capital,

as it will be used in this paper. Section III provides an overview of poverty and

social capital in Bhutan. Section IV presents the methodology of the study by

introducing the two-stage probit least squares (2SPLS) model, followed by an

explanation of data and variables in Section V. The findings are analyzed in

Section VI and Section VI concludes.

1 The Eleventh Five Year Plan stresses Inclusive Social Development, Green Accelerated Economic

Development and Strategic Infrastructure Development as strategic thrust areas. In particular, Inclu-

sive Social Development focuses on regional balance and equity, aiming to reduce poverty both in

terms of income and multidimensional poverty (GNHC, 2013).

2 The BLSS 2012 was based on the survey conducted in the period of March–August 2012 and

published by the Asian Development Bank (ADB) and National Statistics Bureau of Bhutan (NSB) in

2013.

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© 2015 The Authors

Asian Economic Journal © 2015 East Asian Economic Association and Wiley Publishing Pty Ltd