EconPapers    
Economics at your fingertips  
 

Changes in Social Network Structure in Response to Exposure to Formal Credit Markets

Abhijit Banerjee, Emily Breza, Arun G Chandrasekhar, Esther Duflo, Matthew Jackson and Cynthia Kinnan

The Review of Economic Studies, 2024, vol. 91, issue 3, 1331-1372

Abstract: We show that the entry of formal financial institutions can have far-reaching and long-lasting impacts on informal lending and social networks more generally. We first study the introduction of microfinance in 75 villages in Karnataka, India, 43 of which were exposed to microfinance. Using difference-in-differences, we show that networks shrank more in exposed villages. Moreover, links between households that were both unlikely to borrow from microfinance were at least as likely to disappear as links involving likely borrowers. We replicate these surprising findings in the context of a randomised controlled trial (RCT) in Hyderabad, where a microfinance institution randomly selected 52 of 104 neighbourhoods to enter first. Four years after all neighbourhoods were treated, households in early-entry neighbourhoods had credit access longer and had larger loans. We again find fewer social relationships between households in these neighbourhoods, even among those ex-ante unlikely to borrow. Because the results suggest global spillovers, atypical in usual models of network formation, we develop a new dynamic model of network formation that emphasizes chance meetings, where efforts to socialize generate a global network-level externality. Finally, we analyse informal borrowing and the sensitivity of consumption to income fluctuations. Households unlikely to take up microcredit suffer the greatest loss of informal borrowing and risk sharing, underscoring the global nature of the externality.

Keywords: Social networks; Network change; Network formation; Network evolution; Microfinance; Market exposure; Favor exchange; Social capital (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdad065 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Changes in Social Network Structure in Response to Exposure to Formal Credit Markets (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:91:y:2024:i:3:p:1331-1372.

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

More articles in The Review of Economic Studies from Review of Economic Studies Ltd
Bibliographic data for series maintained by Oxford University Press ().

 
Page updated 2025-03-22
Handle: RePEc:oup:restud:v:91:y:2024:i:3:p:1331-1372.