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Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia

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Author Info

  • Kurt Annen

    (University of Guelph, Department of Economics)

Abstract

The paper uses micro-level data obtained from surveying informal and formal small textile producers in Bolivia to estimate the economic returns to social capital. Social capital is defined as being linked to other individuals. The paper studies forms of social links that vary with respect to their inclusiveness and their ability to enforce cooperation. The paper shows, first, that social capital has an economic return for informal firms but not for formal ones. Informal firms operate without the shadow of courts in an environment that is characterized by a lack of anonymous trust which makes self-enforcing social links valuable. Second, more inclusive social capital generates a higher return as long as the self-enforcement constraint is met. The evidence supports the hypothesis that the “strength of weak ties”- argument advanced by scholars such as Granovetter, Putnam, and Fukuyama has to be complemented by the game-theoretic condition requiring exchange among linked players to be (self)-enforceable.

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File URL: http://128.118.178.162/eps/dev/papers/0511/0511011.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Development and Comp Systems with number 0511011.

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Length: 35 pages
Date of creation: 08 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpdc:0511011

Note: Type of Document - pdf; pages: 35
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Web page: http://128.118.178.162

Related research

Keywords: Social Capital; Anonymous Trust; Informal Sector; Small Firms.;

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References

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  1. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 15(3), pages 637-58, October.
  2. Eliana La Ferrara, 2003. "Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana," American Economic Review, American Economic Association, American Economic Association, vol. 93(5), pages 1730-1751, December.
  3. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(1), pages 139-154, March.
  4. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(5), pages 912-50, October.
  5. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1251-88, November.
  6. Kurt Annen, 2001. "Inclusive and Exclusive Social Capital in the Small-Firm Sector in Developing Countries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 157(2), pages 319-, June.
  7. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  8. Annen, Kurt, 2003. "Social capital, inclusive networks, and economic performance," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 50(4), pages 449-463, April.
  9. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, Elsevier, vol. 26(6), pages 979-991, June.
  10. Marcel Fafchamps & Bart Minten, 2000. "Returns to Social Network Capital among Traders," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 145, Centro Studi Luca d\'Agliano, University of Milano.
  11. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  12. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 23(2), pages 581-608, June.
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Cited by:
  1. Lacey Ann Wrubel, 2010. "Earnings determinants for own-account workers in the urban informal economy: The case of Bogotá, Colombia," SERIE DE DOCUMENTOS EN ECONOMÍA Y VIOLENCIA 006842, CENTRO DE INVESTIGACIONES EN VIOLENCIA, INSTITUCIONES Y DESARROLLO ECONÓMICO (VIDE).

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