How Does Social Capital Matter to Health Status ? — Evidence from China Health and Retirement Longitudinal Survey

This paper provides new empirical evidence on the causal effect of social capital on health using waves 2008 and 2012 data from the China Health and Retirement Longitudinal Survey. We use ADL index and CES-D to measure individuals’ physical and mental health respectively. Our study controls for individual unobserved, time-invariant heterogeneity by using individual-level fixed effects and accounts for potential confounding effects by including community-level fixed effects. Instrumental variable (IV) estimates are also employed to overcome time-variant unobservables and reverse causality. Results show that individuals with higher social capital are significantly more likely to have better physical and mental health. There are also heterogeneous effects of social capital on health by gender, age and area of residence. Key words: Social capital index; ADL index; CES-D; Fixed effects; Instrumental variable; China 1. Introduction The positive relationship between social capital and health is widely acknowledged in both economic and public health literature (Kawachi et al., 1997; Folland, 2008; Scheffler et al., 2014). This relationship can be found in many countries, at different measurements of social capital and for various indicators of health. As Putnam(2000) argues, "in none is the importance of social connectedness so well established as in the case of health and well-being". However, the association between social capital and health does not necessarily reflect a causal effect of social capital on health and there is now a lively debate, especially in economics literature, on whether this association (or how much of it) is causal. This discussion is highly relevant to policy-making because understanding this relationship is crucial for guiding policy interventions to improve population's health. If there is indeed a causal effect of social capital on health, one possible policy instrument for health promotion is the investment in social capital. Giving people more access to social capital will – in the long run – be a more successful health intervention than increasing public health care expenditures. Therefore, the question we intend to address is: how does social capital matter to health status? Theoretically, social capital can improve health through the following mechanisms (Folland, 2008). First, it helps to form an environment that facilitates social interaction and builds mutual trust, alleviating individuals’ psychological stress level; Second, social capital helps individuals to obtain information on health behavior and production, thus improving efficiency of personal health production; Third, social participation and interaction can create a sense of shared responsibility in communities, reducing the likelihood of risky behaviors. We acknowledge the financial support by National Social Science Fund of China (Grant No.: 14BRK013). We are very grateful for the helpful comments at Health Economics Seminar at Peking University. All errors are our own. Corresponding author.Tel. :+8602788387901;fax:+8602788386936. E-mail address: xuexindong@znufe.edu. cn Despite many convincing arguments for the positive association between social capital and health, concerns regarding an interpretation of correlations as causation remain. The first challenge is the attempt to disentangle correlation, due to unobserved heterogeneity, from causality. Unobserved heterogeneity such as time preference and personal traits could drive both social capital and health in the same direction. For example, people with low discount rate are likely to engage in health-enhancing behavior, achieve better health status, and at the same time invest more time and money in their health. The second challenge for identification is related to simultaneity between social capital and health, as the people with better health are both physically and financially capable of engaging in more social activities, thus have higher social capital. The third challenge is difficulty to distinguish social capital effect from other local contextual effects that potentially influence health. Social capital may vary between locations depending on social and economic characteristics of the community, thus may confound the effect of social capital on heath status. This paper aims to provide further evidence on the causal relationship between social capital and health by employing the China Health and Retirement Longitudinal Survey (CHARLS) data. To the best of our knowledge, this is the first paper using this data to identify the causal effect of social capital on health in China. The longitudinal nature of the CHARLS and its rich information at both individual and community levels allow us to tackle the above-mentioned challenges which commonly arise when estimating the effect of social capital on health. Our contributions are as follows: First, we use fixed effect model and instrumental variable approach to overcome the endogeneity issue; Second, we use ADL (activities of daily living) index and CES-D (Center of Epidemiological Studies Depression) to measure individuals’ health status respectively, thus producing a more general picture of this relationship; Third, we investigate the heterogeneous effect of social capital on health among different sub-populations by gender, age and area of residence. The paper is structured as follows: Section 2 reviews the background literature; Section 3 describes the data and reports some descriptive statistics; Section 4 presents the identification strategy; Section 5 reports results and discusses; Section 6 concludes. 2. Literature review 2.1 The concept and measurement of social capital Social capital is generally accepted as a multi-disciplinary concept, which is initially developed by Jacobs (1961), Loury (1977), Boudieu (1986) and further operationalized by Coleman (1990). Owing to its elusive nature, social capital has been defined in various ways. Despite various definitions, it is commonly understood to encompass a combination of norms, trust and social support that smooth social interaction of individuals in a community (d'Hombres et al.,2011; Goryakin et al, 2013). One strand of literature divide social capital into cognitive and structural parts. Cognitive social capital includes ethics, value systems, and religious beliefs. Structural social capital mainly refers to social structures, such as density of social network and participation (Harpham et al., 2002). Another strand of literature categorize social capital as bonding, bridging and linking according to its functionality. Bonding social capital refers to the horizontal ties between members of a network who share similar socio-demographic characteristics. It improves health by social support and trust, thus facilitating sharing of health information (Kawachi et al., 1999). Bridging social capital refers to the ties that exist between heterogeneous people. It can contribute to better health through solidarity and collective action (Powell-Jackson et al., 2011). Linking social capital reflects the ties between groups at different hierarchical level. It can enhance health by mobilizing health-promoting resources (Habibov and Afandi, 2011). There are several measurements of social capital. Some researchers suggest the use of composite measures to capture different conceptual components of social capital, instead of single-item indicators (Hurtado, Kawachi & Sudarsky, 2011;Harpham, 2008; Lochner, Kawachi, & Kennedy, 1999). The first frequently used statistical method is Principal Component Analysis (Akçomak & ter Weel, 2009), as it can simplify and reduce data variability by grouping several observed indicators of social capital into a new independent component or index. This approach to derive independent social capital features has been applied in studies in Chile (Sapag et al., 2008) and Colombia (Harpham, Grant, & Rodriguez, 2004). The second approach is standardized z-score index. This standardization method facilitates the interpretation of social capital by considering how different observed indicators are clustered into a new component. Sundqusit et al.(2004) use this approach to construct a single social capital index from 18 types of activity. Ronconi et al.(2010) construct z-score by using information on informal social interactions to measure individual social capital in Argentina. 2.2 Empirical studies A growing body of research documents significant correlations between social capital and health but most of them are non-causal in nature. Current literature defines social capital from three levels: nation, community and individual. At the national level, most studies focus on Western developed countries and test the potential positive relationship between social capital and health. Kawachi et al. (1997) found that, in the United States, individual states’ levels of social capital are negatively correlated with mortality rates. Using the World Value Survey, Helliwell and Putnam (2004) found a significantly positive relationship between residents’ health status and countries’ levels of social engagement and trust. However, using data from a panel of 19 OECD countries, Kennelly, O’Shea and Garvey (2003) found no relationship between social capital (measured by level of trust in others and membership in voluntary organizations) and life expectancy at the national level. At the community level, Islam (2006) and Scheffler (2007) found a positive relationship between community-level social capital and health status using data from the United States and Sweden. However, Poortinga (2006) did not find a significant association between aggregate civic participation and self-reported health status in England when various measures of social support are controlled for. At the individual level, Rose (2000) examined the relationship between social capital and health status with individual-level data, indicating a positive relationship. A similar phenomenon also exists