Cents and Sociability: Household Income and Social Capital in Rural Tanzania

Abstract

Matching a measure of social capital with data on household income in certain rural villages in Tanzania shows that social capital is indeed both capital (in that it raises incomes) and social (in that household incomes depend on village, not just household, social capital).

Narayan and Pritchett construct a measure of social capital in rural Tanzania, using data from the Tanzania Social Capital and Poverty Survey (SCPS), a large-scale survey that asked individuals about the extent and characteristics of their associational activity and their trust in various institutions and individuals.

They match this measure of social capital with data on household income in the same villages (both from the SCPS and from an earlier household survey, the Human Resources Development Survey). In doing so, they show that social capital is indeed both capital (in that it raises incomes) and social (in that household incomes depend on village, not just household, social capital).

The magnitude of social capital's effect on incomes is impressive: a one standard deviation increase in village social capital increases a household proxy for income by at least 20 to 30 percent.

This is as great an impact as an equivalent increase in nonfarming assets, or a tripling of the level of education.

Data from the two surveys make it possible to identify some of the proximate channels through which social capital affects incomes: better publicly provided services, more community activity, greater use of modern agricultural inputs, and greater use of credit in agriculture.

This paper - a joint product of Social Development, and Poverty and Human Resources, Development Research Group - is part of a larger effort in the Bank to understand the social determinants of sustainable development.