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20.11.2017
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Does forced solidarity impede accumulation

 

Research Institutions:

Institute of Social Studies, The Hague, Netherlands and Kiel Institute, Kiel, Germany

 

Summary:

In Sub-Saharan Africa it is not unusual that individuals live in very large households and entertain strong links with the members of their extended family. Such links are frequently characterised by, among other things, significant resource flows in goods, services and money without any direct return.

These flows can be motivated by insurance considerations, altruism or simply be the result of prevailing egalitarian norms which require that the wealthier transfers to the poorer. Such transfers may flow continuously or only happen at the occasion of income shocks, such as crop failure, illness or costly ceremonies. Hence, in principle, it is possible, that transfers occur voluntarily without adverse incentive effects. However, if insurance or societal pressure for redistribution is the main motivating factor, these transfers might put brakes on entrepreneurial activity.  If ‘forced solidarity’ of this type exists and entrepreneur might have little incentive to invest and accumulate capital – if a larger business and larger profits simply mean that even more has to be transferred to the kin. If such behaviour is widespread it might explain, at least to some extent, the lack of a dynamic private sector in many parts of Sub-Saharan Africa. It might also explain why minority entrepreneurs like the Indians in East Africa and the Lebanese and Syrians in West Africa are often so successful and contribute so crucially to the development of the private sector of these regions. In fact, so the argument, these minorities are not directly exposed to requests of relatives and stand outside the complex web of social obligations. The objectives of this research are (i) to build a theoretical model which allows to analytically understand the problem just discussed, (ii) to derive the relevant testable hypotheses and (iii) to test these hypotheses empirically using micro data for informal individual entrepreneurs in seven different agglomerations in Western Africa. This should provide an answer to the question whether ‘forced solidarity’ impedes accumulation.

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