1. Introduction
Over the last few decades, governments and researchers have made considerable efforts to reduce global poverty. It is no wonder that the first sustainable development goals (SDGs) of the United Nations focus on eradicating poverty. However, the United Nations claimed that, in 2020, the global poverty rate increased to around 119–124 million, suggesting that the efforts have not been fruitful. Researchers have been studying subjective well-being to reduce poverty, since it is a more reasonable measure of the level of personal welfare [
1]. However, the findings have not been conclusive [
2]. Moreover, Easterlin [
3] postulated “happiness economics”, which sparked a debate among scholars. The study on the link between income and happiness shows that, on average, those with more income claim better subjective well-being. However, as people grow wealthier, the level of happiness will stop increasing at some point. This phenomenon is known as the “Easterlin paradox”. Bartolini and Bonatti [
4] also pointed out that economic growth could reduce individuals’ well-being by deteriorating social relations. Such impact on social relations—or social capital in general—needs to be examined to understand subjective well-being. Therefore, economic research has been exploring this area, especially since Putnam [
5] discovered a strong relationship between social capital and economic indicators in the United States of America.
According to Bourdieu [
6], social capital is “the aggregate of actual or potential resources linked to a possession of a durable network of more or less institutionalized relationships of mutual acquiescence or recognition.” Similarly, Putnam [
7] defines social capital as “features of social life—networks, norms, and trust—enabling participants to act together more effectively to pursue shared objectives”. These definitions emphasize the role of one’s social relationships in accessing essential resources. Its core premise is that group involvement and participation can benefit both the person and the community if they are well connected. The advantages can also be non-monetary, that will eventually lead to favorable outcomes. Among these are interpersonal trust, a sense of belonging, and reciprocity [
8]. The roles of social capital in economic sectors and society, in general, have been well documented in the literature. We group it into categories: macro- and microeconomics perspectives.
From the macroeconomic perspective, research has highlighted the impact of social capital on the economic growth [
9,
10,
11,
12]. For example, a study conducted by Muringani, Fitjar and Rodríguez-Pose [
12] investigated the impact on regional economic development in 21 European countries. Using bonding and bridging as dimensions, they reported that social capital could be associated with high economic growth. Likewise, Makiyan, Karbalaei and Bahrami [
11] compared the economic growth between countries with low and high social capital. The finding revealed that economic growth in countries with high social capital tends to be higher than those with lower social capital. Hörisch and Obert [
10] also claimed a positive association between economic crisis and social capital.
Some research focuses on the microeconomic perspective [
13,
14,
15]. For instance, Maluccio, et al. [
16] examined the impact of social capital on households’ well-being in South Africa, indicating a positive impact. However, it is critical to note that the estimation results vary according to the years. The estimation from the 1993 data set showed an insignificant effect, but the 1998 data set showed otherwise. This implies that the role of social capital has increased over time. Meanwhile, Wahyuni [
14], using large-scale data from 24,175 Indonesian residents, found that social capital improved household well-being through better income and expenditure. More recently, Kairiza, Kembo, Magadzire and Chigusiwa [
13] estimated how social capital impacts food security in Zimbabwe, showing better security status among households with the highest social capital.
As for research on well-being, it is now seen as a multidimensional notion encompassing numerous areas of life. Traditional measures, such as income, poverty status, and food security, have been challenged for being excessively one-sided and incapable of accounting for non-monetary aspects of quality of life, such as happiness and life satisfaction. As a result, scholars in allied fields such as economics and social science began to demonstrate how social capital affects subjective well-being [
17,
18,
19,
20]. For instance, Hommerich and Tiefenbach [
17] used social affiliation as an indicator of social capital to examine its relation to well-being and found a positive and significant relationship. A similar investigation in Japan by Matsushima and Matsunaga [
18] supports the finding and indicates that volunteering and trust significantly impact well-being, whereas organizational membership does not. However, a study in China found the opposite and stated that organizational membership correlates with well-being [
21]. A tentative explanation of the different findings is socioeconomic conditions, especially if the gap is wide between rural and urban areas. Not only do the socioeconomic conditions vary, but so do the education, infrastructure, and technology innovation. More often than not, rural areas are left behind in all aspects.
Although research has extensively investigated social capital’s impact on subjective well-being [
17,
18,
19,
20,
21], these studies are general [
17,
18,
20] and offer only regional perspectives [
19]. To date, no specific research has investigated the impact’s magnitude on rural and urban areas. Therefore, we aim to fill this gap by investigating the impact of social capital on subjective well-being based on rural and urban typology. Generally, this study is motivated to support the United Nations’ SDGs, notably “no one should be left behind”, by reducing urban–rural disparity and promoting well-being in all layers of society. Likewise, this study contributes to the literature by in three innovations. First, we applied two-stage predictor substitutions (2SPS) to overcome the endogeneity issue when estimating the impact of social capital on subjective well-being. Residents voluntarily participate in a community association as the social capital indicator, influenced by observable factors, such as socio-demographic condition, and unobservable factors, such as motivation. As a result, the social capital variable is potentially endogenous and should be addressed in the estimation to avoid bias estimation [
22]. Second, we extend the body of literature by providing an urban–rural typology model, which has not been covered in past research [
17,
18,
19,
20,
21]. Estimating the effect of social capital by separating the model of urban and rural will provide a deep understanding of how social capital affects rural and urban residents’ subjective well-being. Third, we employed national representative data to capture the whole Indonesian population.
The remainder of the article is structured as follows:
Section 2 outlines the literature review;
Section 3 outlines the research methodology;
Section 4 provides the empirical results;
Section 5 presents the discussion;
Section 6 presents the conclusion of the discussion and policy implications.
2. Literature Review
In recent years, the importance of non-monetary components has become more acknowledged as well-being, which is now recognized as a multidimensional concept encompassing multiple aspects of life [
23]. Traditional well-being measures—such as gross domestic product, as a measurement on a regional level, and income on an individual or family level—have also been challenged as being unduly one-sided and incapable of accounting for non-monetary aspects of life quality, such as happiness and life satisfaction [
24,
25]. As a result, experts in adjacent fields such as economics and political science started to take an interest in subjective well-being [
3,
26,
27,
28,
29], defined as personal cognition and affective evaluation of life quality [
30,
31]. A publication by Diener, et al. [
32] defines subjective well-being as “a broad category of phenomena that includes people’s emotional responses, domain satisfactions and global judgments of life satisfaction.” Past research has widely used two indicators to measure subjective well-being: happiness and life satisfaction [
22,
24,
33,
34]. Happiness represents the emotional quality of daily experience in the short run, whereas life satisfaction indicates long-term thoughts and feelings about life [
35,
36]. An array of variables associated with subjective well-being have been identified in the literature, such as socio-demographic characteristics (such as age and education), personality, social and natural environment [
26,
32], income and consumption [
30], spatial, social, and cultural mechanisms, political processes [
37,
38], and technological adoption [
22]. One of the essential factors promoting subjective well-being is social capital [
17,
18,
19,
20].
In this exploration, social capital is measured by the membership to six essential community associations, namely community membership, community meetings, cooperatives, voluntary work, village/neighborhood improvement programs, youth groups, and religious activities. These associations can be found in many developing countries across the globe [
39], and they can improve subjective well-being through increasing health status, education, literacy, sanitation, financial capital, and individual or community relationships [
40]. More access to the resources from networking in those activities is associated with higher social capital. Similarly, Kawachi, et al. [
41] explain how a community’s social capital influences the quality of life. To begin with, social capital acts as a conduit for the dissemination of well-being-related knowledge and information. Second, social capital can be used to preserve norms and impose social control over potentially harmful behaviors. Third, social capital enables access to services and amenities because cohesive neighborhoods are more adept in organizing collective actions to promote the development of and access to livelihood resources. Fourth, social capital facilitates psychosocial processes, such as forming social support and mutual esteem.
The impact of an association membership (as social capital’s measurement) on subjective well-being has been documented in the literature, but the findings are contradictory. For example, a study by Haller and Hadler [
42], which covers many countries in the World Values Survey, and a study by Yip, Subramanian, Mitchell, Lee, Wang and Kawachi [
21] shows an insignificant relationship between community association and subjective well-being. In contrast, Pichler [
43] revealed that the number of civil society organizations significantly promotes subjective well-being in European countries, with residents being active members in communities reporting better subjective well-being. Research by Huang and Humphreys [
44] in the United States found that membership boosts happiness. Furthermore, transitional countries, such as Colombia, observed a favorable link between its community association and the citizens’ happiness [
45]. Fancourt and Steptoe [
46] also investigate the association between community memberships and subjective well-being, using longitudinal data from 2548 adults in England. The results indicate a positive association between membership and subjective well-being.
While there is clear evidence for the beneficial impact of social capital on subjective well-being in general, the effect of urban–rural disparities in social capital is less evident. Only a few pieces of research have examined differences in the magnitude of social capital’s impact on subjective well-being in rural and urban settings. The first investigation by Mair and Thivierge-Rikard [
47] compares the effect of social capital on subjective well-being among rural and urban residents. They discovered that informal social capital, such as the relation with friends, relatives, and neighbors, is greater for rural residents than for urban residents. Different expectations about social interactions could be the cause of these different outcomes. Individuals in rural areas may expect more casual social relationships than those in urban areas. Secondly, Zawisza and Tobiasz-Adamczyk [
48] found no clear evidence of social capital effects on subjective well-being in urban and rural settings in Poland. Because the results for different regions in the research location vary, there are two research gaps. First, the study only captures informal social capital, namely relation friends, relatives, and neighbors. Past studies did not include the different effects of social capital from formal institutions (i.e., community association). Meanwhile, the development of community association is also different in urban and rural areas. Secondly, past research only involves older adults. Therefore, investigating the different effects of social capital, measured by community association, is essential in extending the existing literature [
47,
48].
5. Discussion
This section discusses this study’s main objective: the impact of social capital on subjective well-being based on urban and rural typology mode. This study began by discussing the impact of social capital on subjective well-being from the pooled model, followed by the rural and urban typology models. Additionally, this study makes the first attempt in the estimation strategy by employing a two-stage predictor substitution (2SPS) to address the endogeneity issue that can produce unbiased estimation. This study summarized that social capital has an essential role in improving residents’ subjective well-being. With high social capital, people have more relations, trust, and safety in their environment. As such, their happiness and life satisfaction also increase. Residents’ subjective well-being is improved by social capital in the form of a community association, notably in terms of happiness and life satisfaction, in terms of buffering community members from mental shocks, such as economic crisis, climate and natural disaster [
62,
63], health conditions [
64], and food insecurity [
65]. The fact that people with the highest social capital are more likely to be happier and more satisfied with life may indicate that they benefit from buffered well-being from such shocks. This is in line with a study in Japan by Hommerich and Tiefenbach [
17], whose model estimations show that social affiliation and membership have positive and significant effect on the subjective well-being (i.e., happiness and life satisfaction). Putnam [
7] agrees with this, and Winkelmann [
66] believes that social capital is a critical determiner of happiness.
Regarding the different effects of social capital in an urban and rural area, this study has revealed that the impact of social capital on subjective well-being is greater for urban areas. There are two tentative explanations. First, the community associations (as the social capital measurement) in urban areas are well-developed, with better infrastructure, technology innovation, and networking. Second, in urban areas, the associations often receive funding from the government in the form of subsidies and training. Helliwell and Barrington-Leigh [
67] support this finding, suggesting that social capital would have a different impact in developed regions than in developing regions.
The results of this study have significant theoretical and practical implications. Firstly, the existing literature has found that social capital has a greater impact on rural residents’ subjective well-being than that on urban residents [
47]. However, past research only covered informal social capital, namely relation with friends, relatives, and neighbors. The empirical findings in our study claim that the subjective well-being impact of social capital—which is measured by community association—is stronger in urban than rural areas. Therefore, the association in rural areas could be improved by mirroring the urban community association. Second, this study offers a valuable insight to promote subjective well-being, not only for Indonesia but also for other countries, since the types of communities explored in this study are not unique to Indonesia: they are common in other developing nations, such as Tanzania [
68], China [
50,
69], India, Madagascar, Cambodia, Kenya, South Africa, and Bangladesh [
39]. Third, because social capital strongly promotes subjective well-being, we suggest expanding community associations to give residents access to well-being improvement information and programs, which could bridge the gap between urban and rural areas. Finally, since subjective well-being has been linked to socioeconomic indicators, community association as a social capital indicator could be integrated in programs to reduce inequalities.
One of the study’s shortcomings is that it solely used community associations as social capital indicators to quantify the impact of social capital on subjective well-being among urban and rural residents. Other social capital measurements, such as bridging–bonding social capital, could be included in future studies, which can support the findings of the results of this study.
6. Conclusions
This study aims to estimate the impact of social capital on subjective well-being based on urban and rural typologies. Two indicators were employed to understand it, i.e., happiness and life satisfaction. This study used large-scale data from 29,341 Indonesian Family Life Survey 5 responses (IFLS-5), consisting of 17,155 urban residents and 12,186 rural residents. The data were analyzed by a two-stage predictor substitution (2SPS) approach to remove the endogeneity barrier that may exist in the estimation. The results indicate that social capital is positively and significantly influenced by age, marital status, having a child under 15 years old, health status, income, and TV ownership, but is negatively affected by education level. In the urban–rural model, we found factors that affect social capital differently. Marital status and internet access significantly increase social capital for rural residents, but do not significantly impact the urban residents’ social capital. By contrast, the number of family members and income significantly improve urban residents’ social capital, but it is not the case for rural residents.
The findings also reveal that social capital significantly increases happiness and life satisfaction. However, based on the urban–rural model, we find that social capital impacts subjective well-being differently in urban and rural populations. In the urban model, social capital increases happiness and life satisfaction significantly. However, the rural model indicates that social capital only significantly increases happiness, not life satisfaction.
We believe that developing community associations in rural areas will increase their role in promoting subjective well-being. This can be achieved by investing in infrastructure, training, and technology innovation.