Social Capital, Network Effects, and Savings in Rural Vietnam

Authors


  • Note: We would like to thank two anonymous referees for their constructive critique and suggestions, and for the insightful advice from the editor. We are grateful for most helpful comments and critique on an earlier version of this paper presented at the UNU-WIDER Conference on Poverty and Behavioural Economics in Helsinki in September 2011 and at other conferences. We also acknowledge useful comments from colleagues at the Central Institute of Economic Management (CIEM), the Institute of Labour Science and Social Affairs (ILSSA), and the Institute of Policy and Strategy for Agriculture and Rural Development (IPSARD), Hanoi, Vietnam and participants at various seminars in Vietnam. Particular thanks are due to Chu Tien Quang, Luu Duc Khai, Nguyen Le Hoa, and Pham Lan Huong for background information and to ILSSA staff for collaboration on data collection. Financial support from Danida is acknowledged. The usual caveats apply.

Abstract

Information failures are a major barrier to formal financial saving in low-income countries. We explore the extent to which social capital in rural Vietnam plays a role in increasing formal savings where knowledge gaps exist. Social capital is defined as information sharing and the elimination of information asymmetries through active participation in the Women's Union. We consider high- and low-quality networks in terms of the quality of information transmitted. We find that membership of high-quality networks leads to higher levels of saving in formal financial institutions and saving for productive investments. Our results support a role for social capital in facilitating savings and suggest that transmitting financial information through the branches of the Women's Union could be effective in increasing formal savings at grassroots level. We also conclude that it is important to ensure that the information disseminated is accurate given that behavioral effects are also found in networks with low-quality information.

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