The effect of localized social capital on new firm formation at the regional level: a spatial lag explanatory (SLX) application

This study examines the effects of localized social capital on new firm formation rates in Greek regions. It uses a path-dependent conceptual framework and spatial econometric techniques to further explain the importance of localized social capital effects on new firm formation rates at the regional level. The IV/2SLS time effects econometric results suggest that the basic components of social capital related to social networks, and social norms have positive and significant effects on new firm formation in a regional context. The impact of social trust is positive and insignificant while, in some cases, it turns to positive and significant. By contrast, the effect of institutional trust is always negative and significant. In addition, the application of a spatial lag explanatory model (SLX) reveals that the basic components of social capital, such as social networks, social trust, and social norms that go to three and five more neighbouring regions have an insignificant influence on new firm formation rates at the regional level. Therefore, the positive social capital effects on new firm formation in a regional context produced in this study appear to be localized remaining within regions.