Social Network Capital, Economic Mobility and Poverty Traps

Sommarat Chantarat and Christopher Barrett

MPRA Paper from University Library of Munich, Germany

Abstract: The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.

JEL-codes: I3 O1 Z1 (search for similar items in EconPapers)
Date: 2008-01
New Economics Papers: this item is included in nep-dev, nep-hap, nep-net, nep-soc and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Social network capital, economic mobility and poverty traps (2012)
Working Paper: Social Network Capital, Economic Mobility and Poverty Traps (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6841

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