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Networks, Migration and Investment: Insiders and Outsiders in Tirupur's Production Cluster

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  • Abhijit Banerjee
  • Kaivan Munshi

Abstract

This paper studies the effects of social network based lending. This is a pervasive phenomenon in most of the developing world. Access to such network capital has an obvious influence on investment. It also influences the pattern of migration since, ceteris paribus, migrants would prefer to be in locations where they have access to their community's lending network. We show that under reasonable conditions such lending will generate a rather specific pattern of migration and investment. In particular, migrants to locations where they do not have access to their community's lending networks will tend to have higher ability than the traditional residents of that location, but will invest less relative to their ability. Under some conditions this generates the possibility that migrants have higher ability but invest less in absolute terms than the local people. We test this implication using data from the knitted garment industry in the South Indian town of Tirupur. Comparing the growth rate of output (which, we argue, proxies well for ability) with investment between garment firms owned by migrants to Tirupur and local people, we find that local people have slower output growth but invest substantially more at all levels of experience. We also find a positive correlation between investment and growth within any single community, consistent with the view that capital access does not vary within each group.

Suggested Citation

  • Abhijit Banerjee & Kaivan Munshi, 2000. "Networks, Migration and Investment: Insiders and Outsiders in Tirupur's Production Cluster," William Davidson Institute Working Papers Series 313, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2000-313
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    Cited by:

    1. Kei Kajisa, 2007. "Personal Networks and Nonagricultural Employment: The Case of a Farming Village in the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 669-707.
    2. Mano, Yukichi & Yamano, Takashi & Suzuki, Aya & Matsumoto, Tomoya, 2011. "Local and Personal Networks in Employment and the Development of Labor Markets: Evidence from the Cut Flower Industry in Ethiopia," World Development, Elsevier, vol. 39(10), pages 1760-1770.
    3. Lanjouw, Jean O. & Lanjouw, Peter, 2001. "The rural non-farm sector: issues and evidence from developing countries," Agricultural Economics, Blackwell, vol. 26(1), pages 1-23, October.
    4. Karavaev, Andrei, 2008. "Information Trading in Social Networks," MPRA Paper 9110, University Library of Munich, Germany.
    5. Peter Lanjouw & Abusaleh Shariff & Dil Bahadur Rahut, 2007. "Rural Non-Farm Employment in India: Access, Income, Farm, Poverty Impact," Working Papers id:913, eSocialSciences.
    6. Robert E. B. Lucas, 2000. "The Effects of Proximity and Transportation on Developing Country Population Migrations," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-111, Boston University - Department of Economics.

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