Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia
AbstractThe 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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Bibliographic InfoPaper provided by EconWPA in its series Development and Comp Systems with number 0511011.
Length: 35 pages
Date of creation: 08 Nov 2005
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Social Capital; Anonymous Trust; Informal Sector; Small Firms.;
Find related papers by JEL classification:
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-11-12 (All new papers)
- NEP-DEV-2005-11-12 (Development)
- NEP-SOC-2005-11-12 (Social Norms & Social Capital)
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