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Strength in Numbers: Networks as a Solution to Occupational Traps

  • Kaivan Munshi

The "new classical" theory states that families in low-skill occupations with low levels of human capital can stay poor from one generation to the next, while families in high-skill occupations with correspondingly high levels of human capital stay wealthy, despite being endowed with the same level of ability on average. This paper proposes an informal institutional mechanism--the community-based network--through which families belonging to the same neighbourhood or kinship group can bootstrap their way out of such low-skill occupational traps. The insight from the dynamic model that is developed is that once they form, new networks providing mutual support to their members and substituting for inherited parental human capital and wealth will strengthen most rapidly in historically disadvantaged communities, generating a correspondingly high level of intergenerational mobility. These predictions are successfully tested using unique data from India. The analysis in this paper, coupled with an emerging empirical literature on networks and migration, provides a new perspective on mobility in developing countries, with restrictive traditional networks decaying even as new networks supporting collective mobility form and strengthen over time. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/restud/rdq029
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Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 78 (2011)
Issue (Month): 3 ()
Pages: 1069-1101

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Handle: RePEc:oup:restud:v:78:y:2011:i:3:p:1069-1101
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  1. Kaivan Munshi & Mark Rosenzweig, 2006. "Traditional Institutions Meet the Modern World: Caste, Gender, and Schooling Choice in a Globalizing Economy," American Economic Review, American Economic Association, vol. 96(4), pages 1225-1252, September.
  2. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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  4. Fairlie, Robert, 2014. "Ethnic and Racial Self-Employment Differences and Possible Explanations," Santa Cruz Department of Economics, Working Paper Series qt24p7v6gc, Department of Economics, UC Santa Cruz.
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  7. Durlauf, Steven N, 1996. " A Theory of Persistent Income Inequality," Journal of Economic Growth, Springer, vol. 1(1), pages 75-93, March.
  8. Maoz, Yishay D & Moav, Omer, 1999. "Intergenerational Mobility and the Process of Development," Economic Journal, Royal Economic Society, vol. 109(458), pages 677-97, October.
  9. 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, vol. 102(5), pages 912-50, October.
  10. Kaivan Munshi, 2003. "Networks In The Modern Economy: Mexican Migrants In The U.S. Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 549-599, May.
  11. David McKenzie & Hillel Rapoport, 2007. "Self-selection patterns in Mexico-U.S. migration: The role of migration networks," CReAM Discussion Paper Series 0701, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  12. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
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