Abstract
Based on the premise that the Internet has the potential to generate trust, this study estimates the effects of the Internet and real GDP per capita on the creation of social capital (measured by trust) for Australia for the period 1985–2013. We use ARDL bounds testing approach (Pesaran et al., 2001) to estimate the short- and long-run relationship and Granger (1969) causality test to assess the causal linkages among the variables. Findings indicate that Internet use reduces social capital in the long-run but contributes slightly to its enhancement in the short-run. There is positive significant association between the level of real GDP per capita and the stock of social capital in the long-run while the relationship in the short-run is negative and significant. No causal link is found between Internet use and social capital while a unidirectional causality running from social capital to real GDP per capita is observed. The negative association between Internet use and the formation of social capital in the long-run may occur because the trust generated through greater online interaction is outweighed by the loss in trust arising from reduced face to face interaction.