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Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia

Author

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  • Kurt Annen

    (University of Guelph, Department of Economics)

Abstract

The paper uses micro-level data obtained from surveying informal and formal small textile producers in Bolivia to estimate the economic returns to social capital. Social capital is defined as being linked to other individuals. The paper studies forms of social links that vary with respect to their inclusiveness and their ability to enforce cooperation. The paper shows, first, that social capital has an economic return for informal firms but not for formal ones. Informal firms operate without the shadow of courts in an environment that is characterized by a lack of anonymous trust which makes self-enforcing social links valuable. Second, more inclusive social capital generates a higher return as long as the self-enforcement constraint is met. The evidence supports the hypothesis that the “strength of weak ties”- argument advanced by scholars such as Granovetter, Putnam, and Fukuyama has to be complemented by the game-theoretic condition requiring exchange among linked players to be (self)-enforceable.

Suggested Citation

  • Kurt Annen, 2005. "Economic Returns to Social Capital in the Urban Informal Sector in Developing Countries: Micro Evidence from Small Textile Producers in Bolivia," Development and Comp Systems 0511011, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0511011
    Note: Type of Document - pdf; pages: 35
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/dev/papers/0511/0511011.pdf
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    References listed on IDEAS

    as
    1. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    2. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 139-154, March.
    3. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    4. Fafchamps, Marcel, 1996. "The enforcement of commercial contracts in Ghana," World Development, Elsevier, vol. 24(3), pages 427-448, March.
    5. Marcel Fafchamps, 2002. "Returns to social network capital among traders," Oxford Economic Papers, Oxford University Press, vol. 54(2), pages 173-206, April.
    6. Annen, Kurt, 2003. "Social capital, inclusive networks, and economic performance," Journal of Economic Behavior & Organization, Elsevier, vol. 50(4), pages 449-463, April.
    7. Eliana La Ferrara, 2003. "Kin Groups and Reciprocity: A Model of Credit Transactions in Ghana," American Economic Review, American Economic Association, vol. 93(5), pages 1730-1751, December.
    8. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
    9. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    10. Pollak, Robert A, 1985. "A Transaction Cost Approach to Families and Households," Journal of Economic Literature, American Economic Association, vol. 23(2), pages 581-608, June.
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    12. Kurt Annen, 2001. "Inclusive and Exclusive Social Capital in the Small-Firm Sector in Developing Countries," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 157(2), pages 319-319, June.
    13. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, vol. 26(6), pages 979-991, June.
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    Cited by:

    1. Lacey Ann Wrubel, 2010. "Earnings determinants for own-account workers in the urban informal economy: The case of Bogotá, Colombia," SERIE DE DOCUMENTOS EN ECONOMÍA Y VIOLENCIA 006842, CENTRO DE INVESTIGACIONES EN VIOLENCIA, INSTITUCIONES Y DESARROLLO ECONÓMICO (VIDE).

    More about this item

    Keywords

    Social Capital; Anonymous Trust; Informal Sector; Small Firms.;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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