Social networks and factor markets: panel data evidence from Ethiopia

TY - UNPB

T1 - Social networks and factor markets

T2 - panel data evidence from Ethiopia

AU - Abay, Kibrom Araya

AU - Kahsay, Goytom Abraha

AU - Berhane, Guush

PY - 2014

Y1 - 2014

N2 - In the absence of well-established factor markets, the role of indigenous institutions and social networks can be substantial for mobilizing factors for agricultural production. We investigate the role of an indigenous social network in Ethiopia, the iddir, in facilitating factor market transactions among smallholder farmers. Using detailed longitudinal household survey data and employing a difference-in-differences approach, we find that iddir membership improves households’ access to factor markets. Specifically, we find that joining an iddir network improves households’ access to land, labor and credit transactions between 7 and 11 percentage points. Furthermore, our findings also indicate that iddir networks crowd-out borrowing from local moneylenders (locally referred as Arata Abedari), a relatively expensive credit source, virtually without affecting borrowing from formal credit sources. These results point out the roles non-market arrangements, such as social networks, can play in mitigating market inefficiencies in poor rural markets.

AB - In the absence of well-established factor markets, the role of indigenous institutions and social networks can be substantial for mobilizing factors for agricultural production. We investigate the role of an indigenous social network in Ethiopia, the iddir, in facilitating factor market transactions among smallholder farmers. Using detailed longitudinal household survey data and employing a difference-in-differences approach, we find that iddir membership improves households’ access to factor markets. Specifically, we find that joining an iddir network improves households’ access to land, labor and credit transactions between 7 and 11 percentage points. Furthermore, our findings also indicate that iddir networks crowd-out borrowing from local moneylenders (locally referred as Arata Abedari), a relatively expensive credit source, virtually without affecting borrowing from formal credit sources. These results point out the roles non-market arrangements, such as social networks, can play in mitigating market inefficiencies in poor rural markets.

M3 - Working paper

T3 - IFRO Working Paper

BT - Social networks and factor markets

PB - Department of Food and Resource Economics, University of Copenhagen

CY - Frederiksberg

ER -