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		It's not what you know - it's who you know! Economic analysis of social capital

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		Pathways of influence in South Africa

		Preferential credit for ethnic firms?

		Choosing better technology. Does social capital help?

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		Unequal access to social capital in Tanzania

		Sites for Sore Eyes: Online Sources on Social Capital

September 2000 Insights Issue #34

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Unequal access to social capital? Evidence from Tanzania

Social capital, it is widely accepted, is beneficial to economic performance. How is social capital formed and how can it be measured? Why do different communities have different levels of social capital? Research at Bocconi University examined group formation - an important dimension of social capital relatively easy to measure - and asked: how does an individual join a group? If diversity within a community - such as degree of income inequality - influences individual incentives to join a group that may provide shared economic benefits, several questions arise. Does greater inequality lead to more or less group participation? As inequality deepens, who drops out - the poorer or the richer members? Is the drop out rate linked to rules of access? Does inequality affect group performance, and therefore access to social capital?

Economic theory predicts that group participation should be affected if there is an increase in inequality. The size of the group depends on members' perception of the gap between the costs and benefits of joining. What happens if the richer members become richer and the poorer members poorer? As long as group size and composition remain unchanged, after the increase in inequality the rich could be liable for higher fees and may decide to drop out. Inequality affecting group size also depends on rules of access. If the richer members impose an exclusion rule to restrict participation to their own kind, this might prevent people from dropping out as inequality increases, but will affect the dynamics of the group to the disadvantage of poorer members.

These predictions were tested using survey data collected from rural households in Tanzania in 1995 and produced the following results:

Higher inequality means that individuals are less likely to be members of a group, suggesting that the more unequal communities are, the less access they have to social capital.

Inequality does act differentially on rich and poor people. As inequality increases, richer people drop out.

The impact of inequality depends on how wealth is distributed and on rules of access. With open access, inequality decreases participation if wide disparities exist between the poor; levels of participation may instead increase with inequality if access to the group can be restricted.

An important dimension of social capital is group performance, in addition to size and formation. Empirical analysis on the same data shows that greater inequality leads to poor group dynamics, for example:

decisions are less likely to be taken by vote

members tend to sort themselves by level of income and ethnicity

poor performance and misuse of funds

infrequent interaction

members feel less encouraged to participate.

Redistributive policies aimed at reducing income inequality may well have the beneficial side effect of building and strengthening social capital.

Contributor(s): Eliana La Ferrara

Further information:
Eliana La Ferrara
Bocconi University and IGIER
Via Salasco 5
20136 Milan
Italy

Tel: + 39 02 58363328
Fax: + 39 02 58363302
Email: eliana.laferrara@uni-bocconi.it

Bocconi University (Italy)

See also:
Inequality and Group Participation: Theory and Evidence from Rural Tanzania, CEPR Discussion Paper 2433. More information
Also presented at the CSAE conference: ‘Opportunities in Africa: Micro-evidence on firms and households’, Oxford, by Eliana La Ferrara (April 2000). More information

Other related links:
Search Eldis for sources on social capital

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