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Networks,communities and markets in Sub-Saharan Africa: implications for firm growth and investment

  • Marcel Fafchamps

This paper examines how relationships and networks affect market exchange in Sub-Saharan Africa. After noting that market exchange aruably plays a larger role in Africa than in developed economies, we show that the presence of transactions costs naturally leads market participants to enter in long-term trading relationships. These relationships form business networks that shape market outcomes. We argue that network segmentation can have large efficiency and equity costs, particularly in international trade. Because of network externalities, groups and countries that are familiar with a particular activity tend to continue investing in that activity. The presence of networks and non-convex transactions costs also complicates the analysis of market competition. Implications for future research are briefly discussed.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number WPS/1999-24.

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Date of creation: 01 Dec 1999
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Handle: RePEc:oxf:wpaper:wps/1999-24
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  1. Paul Collier & Jan Willem Gunning, 1997. "Explaining African economic performance," CSAE Working Paper Series 1997-02.2, Centre for the Study of African Economies, University of Oxford.
  2. Marcel Fafchamps & Bart Minten, 1999. "Property rights in a flea market economy," CSAE Working Paper Series 1999-25, Centre for the Study of African Economies, University of Oxford.
  3. James E. Rauch & Alessandra Casella, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," NBER Working Papers 6628, National Bureau of Economic Research, Inc.
  4. Lang, William W. & Nakamura, Leonard I., 1990. "The dynamics of credit markets in a model with learning," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 305-318, October.
  5. Fafchamps, Marcel, 2000. "Ethnicity and credit in African manufacturing," Journal of Development Economics, Elsevier, vol. 61(1), pages 205-235, February.
  6. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
  7. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  8. Kranton, Rachel E, 1996. "Reciprocal Exchange: A Self-Sustaining System," American Economic Review, American Economic Association, vol. 86(4), pages 830-51, September.
  9. Fafchamps, Marcel, 1997. "Introduction: Markets in sub-saharan Africa," World Development, Elsevier, vol. 25(5), pages 733-734, May.
  10. Marcle Fafchamps, 1999. "Risk sharing and quasi-credit," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(3), pages 257-278.
  11. Posner, Richard A, 1980. "A Theory of Primitive Society, with Special Reference to Law," Journal of Law and Economics, University of Chicago Press, vol. 23(1), pages 1-53, April.
  12. Marcel Fafchamps & Bart Minten, 2001. "Social Capital and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 680-685.
  13. Yujiro Hayami, 1996. "The Peasant in Economic Modernization," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(5), pages 1157-1167.
  14. Barrett, Christopher B., 1997. "Food marketing liberalization and trader entry: Evidence from Madagascar," World Development, Elsevier, vol. 25(5), pages 763-777, May.
  15. Steve Tadelis, 1997. "What's in a Name? Reputation as a Tradeable Asset," Working Papers 97033, Stanford University, Department of Economics.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  17. Fafchamps, Marcel, 1997. "Trade credit in Zimbabwean manufacturing," World Development, Elsevier, vol. 25(5), pages 795-815, May.
  18. Adeola F. Adenikinju & Olugboyega Oyeranti, 1999. "Characteristics and Behaviour of African Factor Markets and Market Institutions and Their Consequences for Economic Growth," CID Working Papers 31, Center for International Development at Harvard University.
  19. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
  20. Marcel Fafchamps & Bart Minten, 1999. "Relationships and traders in Madagascar," Journal of Development Studies, Taylor & Francis Journals, vol. 35(6), pages 1-35.
  21. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  22. Gary S. Becker, 1981. "A Treatise on the Family," NBER Books, National Bureau of Economic Research, Inc, number beck81-1, November.
  23. Kranton, Rachel E, 1996. "The Formation of Cooperative Relationships," Journal of Law, Economics and Organization, Oxford University Press, vol. 12(1), pages 214-33, April.
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