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

Using data from the Tanzania Social Capital and Poverty Survey (SCPS), a large scale survey which asked individuals about the extent and characteristics of their associational activity and their trust in various institutions and individuals, we construct a measure of “social capital” in rural Tanzania. By matching this measure of social capital with data on household incomes in the same villages both from the SCPS and an earlier household survey, the Human Resources Development Survey (HRDS) we show that “social capital” is indeed both capital, in that it raises incomes, and social, in that household outcomes depend on village not just household social capital. The magnitude of social capital’s effect on incomes is impressively large: a one standard deviation increase in village social capital increases household expenditures per person (a proxy for income) by at least 20 to 30 percent. This impact is as large as an equivalent increase in non-farming assets or tripling the level of education. The data from the two surveys also allow the identification of some of the proximate channels through which social capital affects incomes: better publicly provided services, greater use of modern agricultural inputs, more community activity, and greater use of credit in agriculture. The findings, interpretations, and conclusions expressed and in this paper are entirely those of the authors. They do not necessarily reflect the views of the World Bank, its Executive Directors, or the countries they represent.