Factors Contributing to the Size of Nonprofit Sector: Tests of Government Failure, Interdependence, and Social Capital Theory

Based on the county-level longitudinal data in the USA, this study finds that racial diversity is positively associated with the nonprofit sector size. We further find that the share of children below poverty level is negatively associated with the size of nonprofit sectors. Our findings support the government failure theory. Random effects models also show that federal funding and local funding are positively associated with the size of nonprofit sectors, which confirms interdependence theory. Lastly, we do not find statistically significant relationship between social capital—measured by the number of associations—and the nonprofit sector size.