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Social Network Capital, Economic Mobility and Poverty Traps

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  • Chantarat, Sommarat
  • Barrett, Christopher B.

Abstract

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6841.

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Date of creation: Jan 2008
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Handle: RePEc:pra:mprapa:6841

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Cited by:
  1. Jia, Xiangping, 2009. "Synergistic Green and White Revolution: Evidence from Kenya and Uganda," 2009 Conference, August 16-22, 2009, Beijing, China 51367, International Association of Agricultural Economists.
  2. Lyndon Walker & Peter Davis, 2013. "Modelling \"Marriage Markets\": A Population-Scale Implementation and Parameter Test," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 16(1), pages 6.
  3. Saint-Macary, Camille, 2012. "Are Ethnically Diverse Communities “Bad” Communities? An Empirical Study on Social Capital Formation in Northern Vietnam," Economics Papers from University Paris Dauphine 123456789/11437, Paris Dauphine University.
  4. Bhattamishra, Ruchira & Barrett, Christopher B., 2010. "Community-Based Risk Management Arrangements: A Review," World Development, Elsevier, vol. 38(7), pages 923-932, July.

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