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Network Effects in Risk Sharing and Credit Market Access: Evidence from Istanbul

  • Fikret Adaman
  • Oya Pinar Ardic
  • Didem Tuzemen

It is a truism that households in developing countries that face idiosyncratic income/expenditure shocks may face difficulties in smoothing consumption through formal credit institutions, and hence rely, at least partially, on informal ties. While this issue has been explored extensively in the literature for rural areas, the picture reflecting the urban setting remains relatively uninvestigated. This paper aims to fill this gap by presenting an exclusively designed survey implemented in Istanbul. The results of a multi-stage logit estimation of the survey data indicate that monetary transfers from social networks and formal loans are complements, while general usage of network help implies an increased likelihood of asking for network help for easy and/or favorable access to credit. In addition, material security emerges as the key determinant of both eligibility for and use of a formal loan, and of having network help available in easing the loan approval process by banks.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2006/17.

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Date of creation: 2006
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Handle: RePEc:bou:wpaper:2006/17
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