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The Economic Value of Local Social Networks

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  • Frank Ethridge
  • Maryann Feldman
  • Tom Kemeny
  • Ted Zoller

Abstract

The idea that local social capital yields economic benefits is fundamental to theories of agglomeration, and central to claims about the virtues of cities. However, this claim has not been evaluated using methods that permit more confident statements about causality. This paper examines what happens to firms that become affiliated with a highly-connected local individual or "dealmaker." We adopt a quasi-experimental approach, combining difference-in-differences and propensity score matching to address selection and identification challenges. The results indicate that firms who link to highly-connected local dealmakers are rewarded with substantial gains in employment and sales when compared to a control group.

Suggested Citation

  • Frank Ethridge & Maryann Feldman & Tom Kemeny & Ted Zoller, 2015. "The Economic Value of Local Social Networks," SERC Discussion Papers 0170, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:sercdp:0170
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    17. Michael Storper, 2018. "Separate Worlds? Explaining the current wave of regional economic polarization," Journal of Economic Geography, Oxford University Press, vol. 18(2), pages 247-270.
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    More about this item

    Keywords

    Cities; economic development; social networks; social capital;
    All these keywords.

    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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