Academic journal article European Journal of Sustainable Development

The Economic Returns of Network Resources to the Urban Informal Economy: Evidence from Street Vendors in Addis Ababa, Ethiopia1

Academic journal article European Journal of Sustainable Development

The Economic Returns of Network Resources to the Urban Informal Economy: Evidence from Street Vendors in Addis Ababa, Ethiopia1

Article excerpt

1. Introduction

The role of social capital (SC) in economic development has got increased attention since the 1970s (Portes, 1998a; Woolcook, 2001). Views vary on what constitutes SC, how it operates, and how it is defined and measured. Bourdieu (1986, 284) defines SC as 'the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintances and recognition'. Coleman (1988) defines SC as resources embedded in networks that allow individuals and communities to achieve their desired goals. Putnam (1993, 167) treats SC as 'the features of social organization such as trust, norms, and networks that improve the efficiency of society by facilitating coordinated actions'. While Portes (1998, 8) defines SC as 'the ability to secure benefits through membership in networks and social structures', Lin (1999, 35) describes it 'as resources embedded in social structures which are accessed and/or mobilized in purposive actions'.

Despite several attempts to define SC, its definition has remained elusive (Durlauf and Fafchamps, 2004). Lack of a clear definition has led to measurement problems of SC. Review of the literature has, however, shown that there are two perspectives upon which empirical studies have been conducted. The first focuses on behavioural variables: trust, norms, and values. The second approach involves measuring the position of individuals in networks (Adam and Roncevic, 2003). This study has applied the social network (SN) approach because SC exists in the SNs and SNs facilitate expectations and trustworthiness among the actors in the network (Coleman, 1988). SC is rooted in SNs and must be measured relative to its roots'( Lin, 1999). The network dimension of SC also focuses on individuals and their ability to secure benefits by virtue of positions in a network (Portes, 1998a).

An examination of entrepreneurship literature has shown that SNs help entrepreneurs to obtain information, advice, and support from alters (Aldrich and Zimmer, 1986; Birley, 1985), control and manage exchange structures (Larson, 1992), and get financial capital (Uzzi, 1999). SNs also help entrepreneurs to manage crisis (Lourencco-Lindell, 2002), access and share market information (Fafchamps and Minten, 1999, 2001), facilitate firm innovation (Singh et al. 1999; Cantner, Conti, and Meder, 2009), for greater acquisition of firm capabilities (Zaheer and McEvily, 1999), and for financial performance and innovative capability of firms (Baum, Calabrese, and Silverman, 2000). In contrast, there are evidences that show SC have negative effects in that tightly controlled relationships reinforce social obligations that limit the freedom of economic agents to discover and utilize new opportunities(Uzzi, 1997; Light and Isralowitz, 1997; Podolny and Page, 1998). These relationships might be social problems that confine entrepreneurs to rent- seeking activities (Gambetta, 1996; Portes, 1998b; Meagher, 2005).

Despite the rhetoric and growing research on SNs, there are ongoing debates about the significance of SNs (Brüderl and Preisendörfer, 1998;Baum et al., 2000). This is mainly because researchers have used different definitions of the concept, levels of analysis, and research approaches (Berrou and Combarnous, 2012). Some researchers use qualitative techniques, others applied quantitative approaches, and yet others employed mixed methods (Edwards, 2010). Indeed, most studies have been conducted in advanced economies with large-scale enterprises and formal employment conditions with less attention to LDCs where SC plays a vital role in informal activities (Thrikawala, n.d.). The existing SN studies in Africa focus on rural households (Durlauf and Fafchamps, 2004) with limited attention to urban areas where the majority of the urban poor are engaged in the informal sector (Rutashobya, Allan, and Nilsson, 2009).

Applying quantitative methods, this study investigates the causal effect of SNs on the performance of microenterprises in the informal economy1. …

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