The impact of human capital and social capital on income of university graduate in ho chi minh city

UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

VIETNAM

THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACT OF HUMAN CAPITAL AND SOCIAL CAPITAL ON INCOME
OF UNIVERSITY GRADUATE IN HCM CITY

BY
NGUYỄN LIÊN HỒNG PHÚC

MASTER OF ARTS IN DEVELOPMENT ECONOMICS

HO CHI MINH CITY, JULY 2013


UNIVERSITY OF ECONOMICS

INSTITUTE OF SOCIAL STUDIES

HO CHI MINH CITY

THE HAGUE

VIETNAM

THE NETHERLANDS

VIETNAM - NETHERLANDS
PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS

THE IMPACT OF HUMAN CAPITAL AND SOCIAL CAPITAL ON INCOME
OF UNIVERSITY GRADUATE IN HCM CITY

A thesis submitted in partial fulfilment of the requirements for the degree of
MASTER OF ARTS IN DEVELOPMENT ECONOMICS

By
NGUYỄN LIÊN HỒNG PHÚC

Academic Supervisor:
NGUYỄN VĂN PHƯƠNG

HO CHI MINH CITY, JULY 2013


Contents
ACKNOWLEDGEMENT ......................................................................................... iii
ABTRACT ................................................................................................................. iv
CHAPTER 1: INTRODUCTION: .............................................................................. 1
1.1 Problem Statement ............................................................................................. 1

1.2 Research Objective ............................................................................................ 2
1.3 Research Question ............................................................................................. 2
1.4 Research Methodology ...................................................................................... 3
CHAPTER 2: LITERATURE REVIEW .................................................................... 4
2.1 Social capital and status attainment theory........................................................ 4
2.2 Human capital and status attainment theory ...................................................... 6
2.3 Measurement of human capital ........................................................................ 11
2.4 Measurement of social capital ......................................................................... 13
2.5 Relationship between human capital and social capital .................................. 17
CHAPTER THREE: METHODOLOGY ................................................................. 20
3.1 Introduction ...................................................................................................... 20
3.2 Data collection ................................................................................................. 20
3.3 The empirical model ........................................................................................ 21
CHAPTER FOUR: DATA ANALYSIS AND RESULTS ....................................... 34
4.1 Descriptive Statistics ....................................................................................... 34
4.2 Modeling Analyses .......................................................................................... 38

i


4.3 Explanation of coefficients .............................................................................. 42
4.4 Policy implication ............................................................................................ 43
CHAPTER 5 CONCLUSIONS AND RECOMMENTDATION ............................. 46
REFERENCE ............................................................................................................ 48
Appendix 1: Correlation matrices ............................................................................. 59
Appendix 2: Heteroskedasticity Test: (Breusch-Pagan-Godfrey) ............................ 60
Appendix 3: Normality Test...................................................................................... 61
Appendix 4: Regression result .................................................................................. 62
Appendix 5: Regression result of continuous dependent variable ............................ 63
Appendix 6: KMO and Bartlett's Test (Social capital) ............................................. 64

Appendix 7: Anti-image Matrices ............................................................................. 65
Appendix 8: Extracting the Factors........................................................................... 67
Appendix 9: Giving the factors meaning .................................................................. 68
Appendix 10: Obtaining the factor score coefficient matrix .................................... 69
Appendix 11: Obtaining standardized scores............................................................ 70
Appendix 12: Regression result (CFA method for social capital) ............................ 71
Appendix 13: QUESTIONAIRS ............................................................................... 72

ii


ACKNOWLEDGEMENT
First and foremost, I would like to thank my academic supervisor Dr Nguyễn
Văn Phương at Vietnam National University HCMC International University for
the support, the ideas and constructive comments that helped me a lot to
successfully finish this master thesis. I also would like to thank Dr Phạm Khánh
Nam and Dr. Nguyễn Hữu Dũng for supporting during Thesis Research Design
and encouragement. I also am deeply grateful to my family for their love,
support, encouragement and trust in me during the time of thesis processing.

iii


ABTRACT
My study investigates the effects of human capital and social capital on income
of university’s graduate in Ho Chi Minh City. Human capital is captured by
English proficiency, computer skills, and communication skills. Social capital is
categorized by home-based capital, friend connection, extracurricular activities,
peer relationship, teacher-student relationship, and university impact. My study
employs the data through the own survey in 2012. The empirical results are as

follow: i) The English proficiency and communication skills have the significant
impact on income of university’s graduate. ii) The parent education and teacherstudent relationship also have the significant positive effect on income of
university graduate. The message from my study can give to students, educators,
and educational policy makers about the effect of social capital, and human
capital on income.

iv


CHAPTER 1: INTRODUCTION:
1.1 Problem Statement
There are many studies about human capital and social capital alone on different
status attainments such as economics, education, environmental, and many other
things with different levels of impact on individual, firm, organization, and
society instead of the combination between them. Many researchers argue that
the relationship between human capital and social capital are substitution
(Piazza-Georgi 2002). The other side argues that it has the complementary
relationship (Bruderl and Preisendorfer 1998).
In the current market economy in Vietnam, education is the driven factor to
increase knowledge and competency. Human capital is the key factor to increase
value such as wages, competencies, and productivity not only for individual but
also for firm and society as a whole (Denison, 1962; Schultz, 1961). The study of
Grayson in 2004 found that human capital had the positive contribution to
income of university graduate in Canada. Government has recently attracted
many multi-nation companies to invest in Vietnam so the demand of economy is
increasing the demand for employee with a certain form human capital to meet
the requirements of the competitive business environment. 'The knowledge,
skills and competencies and other attributes embodied in individuals that are
relevant to economic activity' is the definition of human capital (OECD, 1998).
With the context of my study, the human capital is captured by English

proficiency, computer skills, and communication skills (Santarelli and Hien,
2012).

1


On the other hand, many studies investigate the effect of social capital on the
many desirable outcomes of individual, household, and firm level. The study of
Yandan Wang examined the effect of social capital on job outcome of university
graduate by using the NELS – National Education Longitudinal Study in 2008.
The study emphasized how importance of the university environment to build up
the social capital that had the positive relationship with job outcome for
university graduates. The study carried out by Nguyen Van Ha to see the impact
of social capital on the household welfare in paper-recycling craft village in
Vietnam in 2004. The other study of Ha Anh Tuan carried out to examine the
impact of social capital on individual income in Ho Chi Minh City. We rarely
see many researches to combine the human capital and social capital impact on
one desirable outcome, especially for the level of individual.
1.2 Research Objective
With the above in mind, I am going to investigate the impact of combination
between human capital and social capital on the income of university graduate in
Ho Chi Minh City. In the transition period of university graduate, the family and
school (Yadan Wang, 2008) generate the social network. Human capital
accumulates through learning during university period. The message from my
study can give to students, educators, and educational policy makers about the
effect of social capital, and human capital on income.
1.3 Research Question
The major relationships investigated in this study are:
Research question 1: Does the investment of individual for the human capital
bring the positive relationship to income?

2


Research question 2: Does the current social capital and cumulative social capital
during university period have the positive impact on income of university
graduate in Ho Chi Minh City?
1.4 Research Methodology
My study uses the survey data of university graduate in Ho Chi Minh City with
the samples size is 252. The combinations of three method of survey are face-toface interview, drop off, and email. The econometric method employed is OLS
(Ordinary Least Square) with robust standard errors.
The major independent variables in the proposed model are cumulative social
capital during university (extra-curricular activity, voluntary service work, and
social connection), current social capital, and Home base social capital
represented by Social Economic Status (parent education level); Human capitals
which measured by English skills, communication skills, and computer skills.
The result of this study aims many readers. First, student can use this as a
preference for good preparation for the transition period. Second, educators and
educational policy makers can use this to have the good design program for
student during university to achieve the desirable human and social capital.

3


CHAPTER 2: LITERATURE REVIEW
Before carrying out the study, we have to know that what the definition of social
capital, human capital is. How is the relationship between human capital and
social capital? What is the theory behind that? In particularly, we have to answer
the question what the definition of social capital and human capital is in the
context of this study, and how we can measure it.

2.1 Social capital and status attainment theory
Bourdieu (1986) defines social capital as “the aggregate of the actual or potential
resources which are linked to possessions of a durable network of more or less
institutionalized relationships of mutual acquaintance and recognition.” He
focused on the social capital with relationships such as family, schooling, and
workplace environment. He states that social capital involves “transforming
contingent relations, such as those of neighborhood, the workplace, or even
kinship, into relationships that are at once necessary and elective, implying
durable obligations subjectively felt (feelings of gratitude, respect, friendship,
etc.)” (1983).
Three form of social capital are obligations and expectations, relational networks,
and social trust and norms (Coleman, 1990). The social capital can help
individual to obtain their objective and mission through the social relationship
and network of social tie. The study of Coleman, which carried out in 1988 to
examined the relationship between the social capital and education achievement
by using the series of National Educational Longitudinal Study. He refers social
capital to social relationships that can help individual to accomplish a task or

4


achieve a goal. Social capital can contribute and promote the learning of
individual and adapt to society and its norms.
Putman (2000) defines social capital “While physical capital refers to physical
objects and human capital refers to properties of individuals, social capital refers
to connections among individuals - social networks and the norms of reciprocity
and trustworthiness that arise from them”. According to Putman, There are two
type of social capital. First, bonding social capital refers to inward relationship
such as within family, group of friend, or ethnic group. Second, Bridging social
capital relates to outward relationship among different groups.

Most of the studies have focused on how human capital impact on the job
attaining process. Because the status attainment theory believes that, the
education achievement such as knowledge and skills is the core factors to have
the competitive advantage to obtain and get a better job (Becker, 1975; Mincer,
1974).
Status attainment theory states that the level of education achieved of one person
affected by social status of parent. According to Featherman & Carter (1976) and
Jencks (1979), the status attainment theory has a high correlation with parent's
occupations, levels of education, and incomes. The level of education in turn
affects the occupation status and income of children.
There are not many researches and literature mention about the effect of
cumulative social capital during university period to income. The connection,
extra-curricular activity, and other activity that created during university period
play an important role in occupational status of individual. The social capital that
created during university might affect occupation of individual in many ways.
Student might get the first job through connection or university network, and this

5


job may be a direction for occupation career of individual, which might directly
affect income. On the other side, the argument of Buerkle and Guseva (2002)
said that the cumulated social capital during university had independent effect on
income of individual.
Buerkle and Guseva (2002) states that the social capital gained in the university
has the effect on individual’s income, and this effect varies by individual’s
education and experience levels. The reason that social capital in university is of
special interest for occupational success is that it is closely tailored to the
student’s career interests and aspirations. Conceptualizing the university
experience is an important source of social capital.

Lin (1999) carried out the research to examine the relationship between social
capital and status attainment. The research had two processes. The first process
focused on how people access to social capital available in a general social
networks, such as a person’s education background, prior experiences. The
second process involved the use of social contact and resources provided by the
contact in the job-search process such as network resources, education, and
initial position. These factors expected to affect attained status like occupational
status, earnings …
2.2 Human capital and status attainment theory
With the challenges of the current knowledge economy, many countries in
general and individual always want to seek the new way to improve and maintain
competitive advantages. In the context of Viet Nam, the success of individual
largely depends on level of competencies. In the end, people are becoming
valuable assets and recognized within a framework of human capital.

6


Generally, the human capital is the combination of two words with different
meaning. In the economic perspective, the human is the subject to take charge of
all economic activities such as production, consumption, and transaction. The
capital refers to ‘factors of production used to create goods or services that are
not themselves significantly consumed in the production process’ (Boldizzoni,
2008). On the creation of these concepts, human capital means one of production
elements, which can generate benefits through inputting it.
There are many studies show that human capital influences many desirable
outcomes. Many economists show that investment in human capital brings the
high individual’s wage compared with other input such as land, labor force, and
financial capital (Salamon, 1991). The investment of the knowledge and skills of
individual is easy to turn into goods and services (Romer, 1990). Human capital,

such as knowledge and skills, which can improved through learning process.
According to Sleezer, Conti, and Nolan (2003), learning is the key factor and
important component to acquire human capital and enhance the relationship with
other through learning process. In the micro perspective, human capital is the key
factor for firm’s competence and comparative advantage (Lepak & Snell (1999).
In the macro perspective, Dension (1962) and Schultz (1961) say that human
capital largely affects wage of individual, productivity of firm, and the economy
of nation. Schultz (1961) stated that human capital plays an important role in the
growth of an economy.
Investment of human capital is not only productivity alone but also other thing.
Attaining learning activity, the learner is easily to apply for the job-seeking
activity. After employed, people are also easily control and organize their job
activity, workplace, and quick adaptation of working condition to receive high
reward from current firm and labor market.

7


We can understand that knowledge and skills are the concept of human capital
that can acquire through the learning activity. Skills, knowledge, competencies,
and experience can consider as the factor of human capital.
The first point of view of human capital is from individual aspect, human capital
is a property against labor force in the classical aspect (Schultz, 1961).
Researchers show that the human capital can closely link to knowledge, skills,
education, and abilities (Garavan, 2001; Youndt, 2004). Human capital is
conceptualized ‘knowledge, competency, attitude and behavior embedded in an
individual’ Rastogi (2002).
The second point of view of human capital is the accumulative process that
people obtain the knowledge and skill throughout the learning activity such as
university, college, vocational education (Alan, 2008). In the other way of saying,

human capital acquires knowledge and skills through experience.
The third point of view of human capital is the production-oriented perspective.
The definition of human capital is “an amalgam of factors such as education,
experience, training, intelligence, energy, work habits, trustworthiness, and
initiative that affect the value of a worker's marginal product” (Frank and
Bemanke 2007). The definition of Romer (1990) is “a fundamental source of
economic productivity’. The definition of OECD (2001) human capital is ‘the
knowledge, skills, competencies and attributes in individuals that facilitate the
creation of personal, social and economic well-being”.
Definition from OECD (1998), Human capital defines as 'the knowledge, skills
and competencies and other attributes embodied in individuals that are relevant
to economic activity'. The job market has the demand that university graduate for
many skills. In the knowledge economy, the increasing demand for highly

8


educated with communication, self-management, adaptation skills,… and
especially English skills, computer skills, and communication skills in the
context of Vietnam where is the interest destination for multinational companies
are the core factors.
The research of Becker in 1975 and Mincer 1974 give a high attention to how
important of human capital, knowledge and skills, affect the job obtaining
process base on the theory of status attainment to get a better job in the job
market. According to Featherman & Carter (1976) and Jencks (1979), “the status
attainment specially acknowledges that the job status of a person is a function of
skills and knowledge of individual, parent education, education attainment of
individual income, and occupation of parent”.
Since the late 1970s, there are many research diagnose the relationship between
income and language proficiency. Most of studies carried out in developed

countries where the destination of immigrants is. Chiswick and Miller (1995,
2002), Bellante and Kogut (1998) examine the relationship of English
proficiency of immigrants and income in United State. The same study carried
out in United Kingdom by Shields and Wheatley Price (2002). We can see that
most of study has just focused on the fluency of destination language on earning
of immigrant.
In the context of developing country where does not the destination of
immigrants. The native language is very diversification and it cannot conduct for
the business language. The earning of indigenous population cannot evaluate by
the fluency of native language but dominant language in business especially
English proficiency. Research explore in developing country is the relationship
of dominant language in business and income among indigenous population.

9


According to Chiswick and Miller (1995), Language proficiency is an important
factor of human capital. It increases the productivity of a person through reduce
transaction cost and exchange information effectively among individual.
Dustmann, (1994) and Shields and Wheatley Price (2002) argue that it help
individual to have a better negotiation with employer to have better earning. As
mention above, Most of studies evaluate the effect of destination language on
income of immigrants. In the context of my study, language proficiency defines
as the proficiency of English, which is the most popular business language.
According to Chiswick and Miller (2002), International transferability is the
return of language proficiency in education of immigrants. In their study,
language proficiency is the key factor and has the positive relationship to the
year of schooling in United State among immigrants. We can say that language is
the complementary with other type of human capital. According to MOLISA
(Ministry of Labor, Invalids and Social Affairs - MOLISA) of Vietnam by 1996,

there were around 85% of student in Vietnam graduated with language skills at
difference levels and around 30% of them using these skills at work.
Computer skills are another form of human capital. There were around 40% of
students graduated with computer skills at different levels and 18% of them
using these skills at work, according to the report of MOLISA of Vietnam by
1996. With the current opening economy, Vietnamese government has a good
policy to attract foreign direct investment. The computer skills and language skill
is the key competitive factor to obtain the job and better earning. These skills
also expect to increase together with FDI investment.
The research of Krueger (1993) showed that the income of worker with computer
skills was around 10-15% higher compare with worker without computer skills.

10


He explained that the earning gap was due to computer skills. On the other hand,
the reverse result of several studies, for example, the study of Sakellariou and
Patrinos carried out in 2004 in Vietnam show that computer skills has no change
for earning of individual. The similar finding found in United State by Handel
(1999), Krashinsky (2000), and in United Kingdom by Borghans and Ter-Weel
(2001).
Borghans (2003) analyzed the returns to various types of skills in Britain and
found that while the ability to write documents and carry out mathematical
analyses yields significant labor market returns. The ability to use a computer
has no substantial impact on wages, despite the higher average earnings of
workers who use computers at work, compared to those who do not.
2.3 Measurement of human capital
The measurement of human capital has categorized into three ways: Income
approach, output approach, and cost approach. Income approach is the wage or
benefit of individual obtained by education or training investment. Output

approach is something such as level of knowledge obtaining, the year of
schooling. The Cost approach prefer to the cost paid for getting knowledge or
certificate.
Income approach is the returns, income or benefit, which an individual obtains
from labor market through education investment. Mulligan & Sala-i-Martin
(1995) defines that aggregate human capital is the sum of quality adjustment of
each individual’s labor force, and presents the stock of human capital utilizing an
individual’s income.

11


Output approach can be measured the human capital by “schooling enrollment
rate”, education attainment, or the production output. Psacharopoulos (1984)
suggested the average years of schooling to measure the stock of human capital.
They refer that the average years of schooling is meaningful to measure the stock
of human capital as a proxy. Barro (1991) and Barro and Lee (1993) measure the
stock of human capital utilizing ‘school enrollment rates’ as a proxy of human
capital. Nehru, Swanson, & Dubey (1993) measure relationship between human
capital and students’ ‘accumulated years of schooling’ in the employable age as
educational attainment.
Cost approach is the accumulated cost to investing for one’s human capital.
Jorgenson & Fraumeni (1989) present the discounted income in the future. The
stock of human capital uses indirectly to measure for this approach. The
investment cost of individual uses to measure in the study of Kendric in 1976.
Chiswick and Miller (1995) utilize Language proficiency is the important factor
of human capital. In Vietnam, the current open economy where the destination of
many multinational companies is, English skills widely believe that is the
important factors in the competitive labor market for university graduate. There
is almost no empirical research on the returns of earning with different levels of

English skill in Vietnam and relationship with other educational outcome as well
as social capital.
The research of Casale and Posel (2010) found that the large return among
Africans who English skills are good. The English skills use in the research is
reading and writing skills. Their research uses the NISD database (National
Income Dynamics Survey). The survey conducted in 2008. The question is how

12


well they could speak and write English together with indigenous language. The
answer ranged into 4 scales “very well”, “fair”, “not well” and “not at all”.
Computer skill is another form of human capital. According to the study of
Sakellariou and Patrinos (2004) in Vietnam, the earning of individual with
computer skills is 10-14% higher than individual who do not. Sakellariou and
Patrinos confirmed again this with the later study. The study used the
instrumental variable approach. The university graduate was asked to measure
their computer skill. It ranged into four scales (low, intermediate, high and very
high). In the other research of Choi (1993) in Korea, The earning of worker was
higher with computer skills in the industries with rapid change in technology
than industries with slow change in technology. The study of Sakellariou and
Patrinos (2004) showed that there was a positive relationship between education
outcome and computer skills in Singapore.
2.4 Measurement of social capital
Home based social capital
Social Economic Status:
The accumulation process of social capital believed that when students and
parents engage in day-to-day educational activities, and as parents provide
resources for better educational development. Parents also bring resources for the
overall development of their children.

Socioeconomic status (SES) is an economic and sociological combined total
measure of a person's work experience and of an individual's or family’s
economic and social position in relation to others, based on income, education,

13


and occupation. In the context of this study, parent’s education is as a form of
social capital that affects to children education outcome measured by earning.
Parent with good and high education will give more support and involvement to
children education activity. Parents who are more involvement and support of
their children are likely to build up social capital within the family (Coleman,
1988). This type of social capital provides young students with the resources that
may have an impact on students’ behavior at university attainment and university
performances. Coleman (1988) viewed social capital as the outcome of
relationships between parents and children.
Crosnoe (2004) found that emotionally distant relationships with parents were
associated with declining academic achievement. Some studies also examined
the relationship between social capital within family and years of schooling.
Some earlier studies have found a positive relationship between socioeconomic
status of family and education result of the children.
Social Capital in College
Extra-curricular activities:
Extra-curricular activities are activities performed by students that fall outside
the realm of the normal curriculum of school education. Such activities are
generally voluntary as opposed to mandatory, tend to be athletics, social and
philanthropic as opposed to scholastic, and usually involve others of the same
age (Robert S. Rubin, 2003). Another way of saying, on university campuses,
extra-curricular involvement is a key tool in personal development. The majority
of university students, involvement in extra-curricular activities, play an integral

role in the college experience. “Students involve in extra-curricular activities is
not only for entertainment, social, and enjoyment purposes, but most important,

14


gain

and

improve

skills”

( These activities create environment for student to meet and
interact with other people beside their friends. This might help them to expand
their social network and diversify their relationship. Students can learn and
exchange information effectively beside what they learn in the classroom.
Extracurricular activity is the good way for the student to develop relationship
with other people with different backgrounds and different characteristics, which
is the important part of social capital. Besides that, it also help student improve
the skill how to work together. That will lead to better learning outcome and job
outcome later on. Brehm & Rahn (1997) said that Extra-curricular activities is
“web of cooperative relationships between citizens”
In my study, participation in extracurricular activities help individual enhances
the social network and relationship in both university and communities. So it can
be considering as a factor of social capital. For example, through participating
English club student not only improve their English skill but also make friend
with many people with many different backgrounds.
There are many studies demonstrated a linkage between student’s participation in

extra-curricular activities and their academic proficiency and other outcomes. In
a study of students’ extra-curricular involvement, Rombokas (1995) have
examined if the degree of participation in extracurricular activities affected
college academic performance and have found the positive relationship with job
outcome. Guest and Schneider (2003) found that involvement in extracurricular
activities, such as sports. Eccles (2003) pays attention to the influence of extracurricular activity on issues such as academic achievement, personality and
social behavior.

15


Peer relationship:
There are some studies show that peer relationships play an important role in the
development of student’s social behavior and school performance. Peer
relationships in school have studied by many researches. Nichol & White (2001)
found that peer relationship was an important factor affect to student’s
development. The empirical study of Berndt & Keefe (1995) and Wentzel &
Caldwell (1997) showed that the positive relationship between academic
accomplishments and having a friend. Friendship has strong impact on student’s
general levels of involvement in school and time spent on academic pursuit
(Berndt & Keefe, 1995). The supportive evidence for the positive influence for
academic achievement of algebra and student peer group (Nichols and White,
2001). Nichols and White (2001) pointed out that it needs to understand peer
group context as an important factor in student’s social behavior and academic
performance. In sum, these various studies have supported that peer relationships
can be an important social resource for students. A good peer relationship can
motivate and encourage students to be more engaged in positive behaviors. Peer
relationship is considering as a source of social capital. During university time,
students spend most of their time with peers. It is not surprising that peers have
the important role of student’s lives and influence each other’s behavior and

opinion. The influence of peers is of critical importance in their life and the
opinions of peers sometimes can even carry more weight than parents’ opinions.
Teacher and student relationship
The teacher – student relationship considers as another form of social capital.
This relationship has the effect to many outcome of student.

16


There are many factors affect to teacher – student relationship such as student
demographic variables, academic orientations, and behavioral orientations
(Murray and Greenberg, 2000). The author found that above variables have the
significant effects to teacher – student relationship. Birch & Ladd (1997) found
that individual student characteristics, behaviors and academic performance also
affect to teacher –student relationship. With the logical thinking, positive
relationship between teacher and student can bring to positive academic
performance for student. Student feels more comfortable and easy to talk to
teacher with challenges and improve learning such as asking questions in class
and persisting with solving difficult matters in learning. The study of Birch &
Ladd also showed that student worked hard with the close concern from teacher
that would lead to better academic performance. More specifically, students who
come to school with poor social skills would benefit more from more personal
teacher - student relationships.
2.5 Relationship between human capital and social capital
Regarding the relationship between social capital and human capital, Coleman
(1998) emphasizes the role of social capital in the creation of human capital. In
contrast, other researchers argue the causal chain should be reversed, for instance,
social capital can be an unintended by-product of the constitution of the human
capital (Buerkle & Guseva, 2002).
Many authors have studied the effects of human capital and social capital on

various outcomes, usually focusing on either human capital alone (Cooper, 1994;
Van Praag and Cramer, 2001) or social capital alone (Yoon, 1991; Bates, 1994;
Pennings, 1998) rather than their combination. Some scholars argue that they are
substitutes, and others see them as complements. It is hard for individual to

17


invest in both human capital and social capital at the same time. According to
Bruderl and Preisendorfer (1998), “social capital compensates for shortcomings
in human capital”. Otherwise, Piazza-Georgi (2002) states that “investment in
human capital leads to a loss in social capital”.
The study of Knack and Keefer (1997) showed that the social capital brings
higher returns to society than human capital. One of the main drivers of
economic growth is the interaction between human capital and human capital
(Barro and Sala-i-Martin, 1995).
The study of Pennings in 1998 found that the human capital and social capital
strongly predicts the failure of accounting firm in Dutch. The potentials’ ties to
potential clients represented for social capital. Human capital represented by
industry experience of firm, education level, and firm tenure.
For individual, the study of Davidsson and Honig in 2003 found that the
opportunity discovery and exploitation is the result of the effect of human capital
and social capital. Their study used the longitudinal data for Swedish. There are
two findings in their study. (i) The success of exploitation highly associated with
social capital, and (ii) Entrepreneurial discovery is strongly predicted by human
capital.
Investment in human capital and social capital improve the firm’s performance
in Dutch (Bosma and Van Praag; 2004). The firm’s performance captured by
profits, survival, and generated employment. Their study uses the data from
Dutch entrepreneurs.

Coleman (1988) states that human capital and social capital has the
complementary relationship. The social capital in community and family can

18


help individual promote human capital. “Social capital is the contextual
complement to human capital’’ (Burt; 2001). On the other hand, other
researchers state that human capital and social capital has the substitution effect
such as Bruderl & Preisendorfer (1998) and Piazza- Georgi (2002)

19