Social Networks and Household Welfare in Tanzania: Working Together to Get Out of Poverty, Working Paper Series, Social Science Research Network 12

Abstract. This paper examines empirically the effect of social capital, measured by household membership in community-based organizations and participation in village life, on the welfare of rural households in Tanzania. Using a database that combines standard information on household welfare with multidimensional measures of social capital, the paper attempts to address three challenges in the empirical estimation of the effect of social capital on household welfare: 1) the differential effects of household and village-level social capital; 2) the omitted variable bias associated with models of household expenditures; 3) and the joint endogeneity problem. Our main conclusion is that, controlling for omitted variables and joint endogeneity, household-level social capital is associated with a percentage increase in household per capita expenditures, and that this finding is robust to a variety of specifications and instruments. Preliminary results also suggest that social capital and human capital act as complements: as people acquire more education, the usefulness of these associations and networks for household expenditures is increased. Finally, we find that household-level social capital appears to be associated with a significant decrease in a households probability of being poor, indicating that social capital could be a valid investment for the rural poor in Tanzania