Social networks and economic development

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Scholars from diverse disciplines such as sociology, anthropology, political science and economics agree that social capital is a valid object for research. Consequently, the application of the social capital lens has now been extended to generate further understanding of various social phenomena such as getting employment, educational performance and the provision of health care, and of course, economic growth and development processes (Putnam, 1995; Fukuyama, 2000; North, 2000; Frederking, 2001 and Henrich et al., 2004).
It could be argued that the establishment and acceptance of the human capital concept in economics has forced researchers to accept the concept of social capital in economic development research. As can be observed from the literature there has been a meticulous application of social capital theory to an understanding of the connection between economic agents’ environments and their economic capabilities. The seminal works of Coleman (1988 and 1990) and Putnam (1993) are widely referred to, and have been instrumental in the revived debate on social capital. Currently, social capital is talked about with increasing frequency in academic corridors and political circles, being discussed alongside established concepts such as financial, physical and human capital (Dasgupta, 2004).
Social capital arguments are nested within the understanding that recurring social interactions lead to the formation of social structures that affect and shape economic agents’ decisions through facilitation of information sharing, reduction of transaction costs and amelioration of collective action dilemmas (Isham, 2000). Scholars now concur that a dense network of social connections, associational activities and conventions has beneficial effects for the economic efficiency of individuals, regions and even nations. However, although no one should claim that social capital alone accounts for all the economic variations between regions or individuals, it is also clear that neither should anyone ignore its significance for economic outcomes. From a review of the social capital literature, a common position that can be discerned is that social capital research has been pursued along roughly two planes, one being the structural formulations of social capital and the second being its empirical testing. Representative work on the structural formulation of social capital includes work by Coleman (1990), Putnam (1993), North (1999 and 2000), Arrow (2000), Dasgupta & Serageldin (2000), Fukuyama (2001) and Durlauf & Fafchamps (2004).


“Strong” ties are understood to be beneficial in assisting new entrepreneurs in “getting started” (Granovetter, 1973) since such strong relational and emotional bonds discourage members from acting contrary to group goals and norms. For that reason entrepreneurs rely on such strong networks in establishing new enterprises. Due to previous interaction between members of strong networks, members are more familiar with each other, which makes it easy to monitor each other’s activities, which also make it possible to deal with principal agent and moral hazard issues. Relational ties encourage those who have already made it in business to be socially and morally obliged to advise and mentor their own kith and kin should they wish to establish their own businesses.
There is a strong psychological contract between such related members. Besides sharing limited resources, networks are a foundation upon which entrepreneurs develop the capacity to address resource constraints and coordination problems through referring strategies (Fafchamps, 1997 and 2001; Warren et al., 2001; Fafchamps, 2004). Equally, these networks are more reliable and cost effective social enforcement mechanisms to compel members to honour contractual obligations entered into than elaborate formally constructed contracts. Strong bonds have been understood to be critical for the success of entrepreneurs from minority groups who resort to non-market sources like friends, family and relatives as recourse for start-up capital (Basu & Goswami, 1999). Dew et al. (2004) established that entrepreneurs leverage and acquire productive factors from their social networks, at a price well below what they would otherwise have paid for at the factor market, given similar conditions of high uncertainty. New entrepreneurs are most likely to rely on their social networks to get start-up capital and employees, as their ideas are perceived to be risky by most formal financial institutions and labour markets. The inherent scepticism by formal financial institutions towards new enterprises means that, had it not been for help from social networks, most new entrepreneurs’ ideas would have remained only on paper. Fafchamps (1997) attributed the reason why sub-Saharan Africa has few successful entrepreneurs to the risk-averse behaviour of formal financial institutions in extending capital to new entrepreneurs.
Kristiansen & Ryan (2002) and Kristiansen (2004) attributed the success of Asian entrepreneurs in East Africa to their strong familial social relations. The social networks of Asian entrepreneurs act as conduits of initial capital, market access information and technical knowledge. The strong cultural unity and economic solidarity of Asian entrepreneurs lubricate cooperation in credit and risk spreading arrangements. The Asian minority groups are also known for being highly geographically mobile in search of business opportunities. Green & Changanti (2004), Fredrick & Henry (2004) and Sequeira & Rasheed (2004) established that “strong” social networks are critical sources of business intelligence for minority Asian entrepreneurs in the United States during the process of establishing new enterprises. Their observation was that minority ethnic entrepreneurs would start by working for their relatives and ethnic members to gain experience after which they will then be able to borrow start up capital from their kinsmen who even provide important business and market-knowledge. In the same vein, these minority Asian entrepreneurs in the United States are known to have developed strong social bonding among themselves during their ethnic encounters, which they also use to identify reliable employees. Just as Asian entrepreneurs managed to succeed in East Africa by tapping into their social resources so have the minority Asian entrepreneurs managed to succeed in the United States.

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It was from the above socio-economic landscape that 130 entrepreneurs (27 family enterprises, 67 male and 36 female entrepreneurs) were selected from 945 entrepreneurs registered with the Chimanimani Business Trust. It is very important to understand the socio-economic characteristics of the entrepreneurs, as these influence their business outcomes in a number of ways. For instance, Katungi et al. (2007) noted that women in rural areas in Uganda have a high opportunity cost of time, which is likely to restrict them to particular types of economic activities. In addition, Makhura (2001) established that the education level of entrepreneurs determines their ability to make use of social capital, and the same was noted by Katungi (2006) with respect to the ability of their participation in networks. It can be argued that the level of participation in different economic opportunities in Zimbabwe is influenced by gender, as male and female entrepreneurs gain different benefits from social capital.
The district’s abundant timber explains why carpentry and joinery enterprises are dominant entrepreneurial activities in the area. Craftwork and restaurants are also a dominant form of enterprise in the district. This sector was initiated to respond to the needs of the district’s once thriving tourism sector, which used to attract more than 10 000 tourists annually. Enterprises providing trading and services are expected in a district like Chimanimani whose nearest urban centre, the town of Chipinge, is 65km away. Table 4.6 below shows the diversity of enterprises in the study as well as the employment trends between the period when enterprises were created and at the time of the survey. The employment trends are consistent with worldwide trends, where small-scale enterprises usually start with only a few workers, as was established by Liedholm et al.

CHAPTER 1 Introduction
1.1 Background and context
1.2 Research gap
1.3 Justification and motivation
1.4 Objectives of the study
1.5 Hypotheses
1.6 Theoretical background and conceptual framework
1.7 Approach and methodology of the study
1.8 Organisation of the study
CHAPTER 2 A Synthesis of Social Capital and Economic Development Literature
2.1 Introduction
2.2 The resurgence of social capital research
2.3 Social networks and economic development
2.4 “Strong” ties and economic development
2.5 “Weak” ties and economic development
2.6 The gender dimensions of social capital in economic development
2.7 Summary
CHAPTER 3 Research Design and Methodology
3.1 Introduction
3.2 The research design and approach
3.3 Sampling procedures and data
3.4 Analytical methods
3.5 Summary
CHAPTER 4 The Socio-Economic Profile of the Chimanimani District
4.1 Introduction
4.2 The geographical location of the Chimanimani district
4.3 The economic profile of the Chimanimani district
4.4 Characterisation of the economic activities in the district
4.5 Socio-economic characteristics of the entrepreneurs in the study
4.6 Summary
CHAPTER 5 The Role of Social Networks in Small-Scale Enterprise Establishment and Expansion in the Chimanimani District
5.1 Introduction
5.2 Objective and hypothesis
5.3 Conceptual framework
5.4 Descriptive overview of the business enterprises in the survey
5.5 Social networks and start-up capital for rural non-farm enterprises
5.6 Social networks and capital for rural non-farm enterprises expansion
5.7 Membership of associations and contacts maintained
5.8 Simple Regression analysis results
5.9 Summary
CHAPTER 6 Social Networks and Coordination of Intra-Enterprise Activities in the Chimanimani District
6.1 Introduction
6.2 Objective and hypothesis of the chapter
6.3 Conceptual framework and survey of literature on social capital within enterprises
6. 4. Social networks and intra-enterprise coordination in the Chimanimani District
6.5 Summary
CHAPTER 7 The Most Important Social Networks for Small-scale Rural Non-farm Enterprise Development in the Chimanimani District
7.1 Introduction
7.2 Objectives and hypothesis to be tested
7.3 Social networks and economic growth nexus
7.4 Descriptive statistics of the social capital indicators
7.5 Basic analytics of the Principal Component Analysis model
7.6 Isolating the Principal Components
7.7 The most important social networks for rural non-farm entrepreneurs in the Chimanimani District
7.8 Associations maintained and enterprise mean asset value relationship
7.9 Summary
CHAPTER 8 Conclusions, Policy Implications and Areas for Further Investigation
8.1 Summary
8.2 Conclusions and policy recommendations


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