Network Locations or Embedded Resources? The Effects of Entrepreneurs’ Social Networks on Informal Enterprise Performance in Ethiopia

Abstract

Unlike the industrialized economies where economic exchange is mainly based on impersonal transactions, African economies rely heavily on interpersonal relationships and social networks. Though the study of social networks in African economies is not new, quantitative perspectives on returns of social networks in the informal sector have rarely been the subject of empirical analysis. While studies in Ethiopia have documented how rural households use their networks to improve agricultural productivity and livelihoods, little is known about the contribution of networks in the informal economy. Yet, debates are prevalent on the contribution of social networks in enterprise performance as their effects vary depending on the context of study. This paper thus examines the effects of entrepreneurs’ social networks on informal enterprise performance. Multi-stage sampling procedures involving purposive and systematic random-walk techniques were employed to draw samples. Ego-network data were collected through name generator and interpreter surveys constructed on the basis of regular relations of people related to resources needed and obtained by entrepreneurs for the operation of businesses. The data were analyzed using social network analysis and statistical procedures. Multiple regression models were used to investigate the extent to which an entrepreneurs’ location in networks and embedded resources affect enterprise performance. The findings revealed that while the diversity of contact resources has a significant positive effect on enterprise performance, an entrepreneurs’ location in a network has a significant negative effect.