Econ. Dev. Article of the day: Household Income and Social Capital in Rural Tanzania

From the article: Narayan and Pritchett (1997) Cents and Sociability: Household Income and Social Capital in Rural Tanzania, World Bank, Washington DC, USA.

Mian points:

“[s]ocial capital” is indeed both capital, in that it raises incomes, and social, in that household outcomes depend on village not just household social capital.

From an economist’s viewpoint . . . pure non-cooperative action would lead to inferior outcomes and hence that greater social capital potentially leads to better outcomes by facilitating greater cooperation.

Five mechanisms of how social capital affect outcomes:

First, Putnam’s (1993) fascinating analysis of the variations in public sector efficacy of the newly created regional governments in Italy suggests that regions of Italy in which people had greater degrees of horizontal connections had more efficacious governments.

Second, independent of the efficacy of governmental activity the role of group or community cooperative action in solving problems with a local “common property” elements is potentially important.

Third, diffusion of innovations might be facilitated by greater linkages among individuals.

Fourth, greater associational activity may lead to less imperfect information and hence lower transactions costs and a greater range of market transactions in outputs, credit, land and labor leading to higher incomes.

Fifth, greater sharing of household risk and informal insurance may allow households to pursue higher return but more risky activities and production techniques.

[h]igher social capital was associated with higher levels of school quality.

[v]illages with higher social capital alarger fraction of households report using credit for agricultural improvements.

[s]ocial capital appears to shift (natural log) expenditures upward without affecting the inequality of the distribution.

[a] one standard deviation increase in the village social capital index (as would be caused by half the village joining one additional group with average characteristics) is associated with at least 20 percent higher expenditures per person in each household in the village.

The social capital of a household’s village is as important in determining the household’s income as many of the household’s own characteristics which receive a great deal of attention (e.g. schooling, assets or distance to markets, gender of household head).