Strengthening local economies through social capital: The role of cooperative firms in driving economic growth in Italy

This paper aims to empirically explore the linkage between the cooperative sector and economic growth in Italian provinces (NUTS-3), through a panel analysis covering the period between 2013 and 2019. We hypothesize that the cooperative sector can contribute to economic growth through its ability to generate social capital, thereby helping to mitigate market failures. The empirical analysis does not provide us with robust evidence of the positive connection between the cooperative sector as a whole and local economic growth. However, when we disaggregate the cooperative sector into ordinary and social cooperatives, we find intriguing results. Indeed, there is robust evidence of a negative relationship between the territorial distribution of ordinary cooperatives and economic growth, while for social cooperatives we find a positive relationship. We interpret these results as showing that the pursuit of general interest objectives, which allows the principle of mutuality to be extended to indirect forms of reciprocity, could make cooperative firms more effective in promoting the economic performance of territories. This is because they are more likely to generate bridging social capital that encourages the spread of generalized trust, a key factor in the advancement of modern market economies.