Social Networks and Development Outcomes

In countries where property rights and the rule of law are poorly enforced, and markets fail or are missing, social networks play a fundamental role.  Social connections solve information and commitment problems, which enable individuals to have access to credit and insurance or employers to find employees better suited for the jobs that become available.

But showing that the social networks improve the economic outcomes of their members is a challenge.  Recently, richer datasets and new models started to provide greater precision in distinguishing social forces, such as diffusion of information, norms, and peer pressure and different ways that they affect economic decisions.  These social forces all depend in different ways on the network structure.

Regarding the analysis of the network structures themselves, a promising research area is the study of small communities in developing countries.  They tend to be relatively closed, thus yielding a holistic view of the patterns of interaction and an unusual degree of control in field experiments.  The diffusion of microfinance, education, and vaccination are examples of research topics that have been explored recently in field experiments. But many questions are still unanswered. For example, the mechanism through which the network structure affects decisions on migration, social mobility, income inequality, and job allocation are not fully understood and could benefit from further investigation.

Alatas, Vivi, Abhijit Banerjee, Arun G. Chandrasekhar, Rema Hanna, and Benjamin A. Olken (2012) “Network Structure and the Aggregation of Information: Theory and Evidence from Indonesia.NBER Working Paper 18351[Working paper version]

Banerjee, Abhijit, Arun G. Chandrasekhar, Esther Duflo, and Matthew O. Jackson (2013) “The Diffusion of Microfinance.” Science 341(6144).

Beaman, Lori (2012) “Social Networks and the Dynamics of Labor Market Outcomes: Evidence from Refugees Resettled in the U.S.” Review of Economic Studies, 79(1): 128–61.[Working paper version]

Bloch, Francis, Garance Genicot, and Debraj Ray (2008) “Informal Insurance in Social Networks.” Journal of Economic Theory, 143(1): 36–58.[Working paper version]

Dhillon, Amrita, Vegard Iversen, and Gaute Torsvik (2013) “Employee referral, social proximity and worker discipline: Theory and evidence from India.” CESifo Working Paper 4309.

Fafchamps, Marcel, and Susan Lund (2003) “Risk Sharing Networks in Rural Philippines.” Journal of Development Economics 71(2): 261–87.[Working paper version]

Jackson, Matthew O. (2014) “Networks in the Understanding of Economic Behaviors.” Journal of Economic Perspectives, 28(4): 3-22.

Karlan, Dean, Markus Mobius, Tanya Rosenblat, and Adam Szeidl (2009) “Trust and Social Collateral.” Quarterly Journal of Economics, 124(3): 1307–61.[Working paper version]

McKenzie, David, and Hillel Rapoport (2007) “Network Effects and the Dynamics of Migration and Inequality: Theory and Evidence from Mexico.” Journal of Development Economics, 84(1): 1–24.[Working paper version]

McKenzie, David, and Hillel Rapoport (2010) “Self-Selection Patterns in Mexico–U.S. Migration:The Role of Migration Networks.Review of Economics and Statistics, 92(4): 811–21.

McMillan, John, and Christopher Woodruff (1999) “Interfirm Relationships and Informal Credit in Vietnam.Quarterly Journal of Economics, 114(4): 1285–1320.[Working paper version]

Munshi, Kaivan. 2003. “Networks in the Modern Economy: Mexican Migrants in the U.S. Labor Market.” Quarterly Journal of Economics, 118(2): 549–97.[Working paper version]

Munshi, Kaivan. 2014. “Community Networks and the Process of Development.” Journal of Economic Perspectives, 28(4): 49-76.