The Strength of Weak (Family) Ties: The Effects of Family Networks in High vs. Low Income Countries Gianmarco Daniele a and Benny Geys b a Vrije Universiteit Brussel (VUB), Department of Applied Economics, Pleinlaan 2, B-1050 Brussel, Belgium b Norwegian Business School BI, Department of Economics, Nydalsveien 37, N-0442 Oslo, Norway Email: [email protected]; [email protected]Abstract Alesina and Giuliano (J. Econ. Growth, 15(2), 2010) illustrate that strong family ties lead to disruptive socio-economic outcomes including lower geographical mobility and reduced labor force participation of young and female individuals. We extend their analysis by arguing that the effect of strong family ties on economic behavior depends on a country’s level of economic and institutional development. This cross-country heterogeneity arises because strong family ties not only foster traditional family values (which have disruptive effects on economic outcomes), but also provide – especially in societies characterized by weak institutions and limited market access – economically valuable social networks. Empirical evidence using data from all currently available waves of the European and World Value Surveys (EVS/WVS) is supportive of our theoretical argument. Keywords: Family Ties, Trust, Social Capital, Labor Market Participation, WVS. Word count: 6082
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The Strength of Weak (Family) Ties:
The Effects of Family Networks in High vs. Low Income Countries
Gianmarco Daniele a and Benny Geys
b
a Vrije Universiteit Brussel (VUB), Department of Applied Economics, Pleinlaan 2, B-1050 Brussel, Belgium
b Norwegian Business School BI, Department of Economics, Nydalsveien 37, N-0442 Oslo, Norway
Alesina and Giuliano (J. Econ. Growth, 15(2), 2010) illustrate that strong family ties lead to
disruptive socio-economic outcomes including lower geographical mobility and reduced
labor force participation of young and female individuals. We extend their analysis by
arguing that the effect of strong family ties on economic behavior depends on a country’s
level of economic and institutional development. This cross-country heterogeneity arises
because strong family ties not only foster traditional family values (which have disruptive
effects on economic outcomes), but also provide – especially in societies characterized by
weak institutions and limited market access – economically valuable social networks.
Empirical evidence using data from all currently available waves of the European and World
Value Surveys (EVS/WVS) is supportive of our theoretical argument.
Keywords: Family Ties, Trust, Social Capital, Labor Market Participation, WVS.
Word count: 6082
1
1. Introduction
Despite a strong global shift towards the individualization of societies, the family unit
generally remains an essential feature of contemporary life, and its structures and importance
have long been scrutinized throughout the social sciences. Following a path-breaking study
by Alesina and Giuliano (2010), families’ fundamental role has recently attracted renewed
interest also among economists. They show that strong family ties are causally related to
several factors disruptive to economic growth, including lower labor force participation of
young and female individuals and lower geographical mobility (see also Alesina and
Giuliano, 2013; Alesina et al., 2013). Subsequent studies illustrate similar negative effects on
labor force participation of elderly individuals and on individuals’ social or interpersonal trust
(Ermisch and Gambetta, 2010; Alesina and Giuliano, 2011, 2013). Related, Duranton and
Rodriguez-Pose (2009) also find that weaker ties between family members are linked to
increased economic dynamism.
In this article, we extend this important developing line of research by arguing that
allowance should be made for cross-country heterogeneity in the effect of family ties.1 The
underlying argument starts from the observation that existing studies’ theoretical reasoning
mostly refers to the connection between strong family ties and (traditional) family values. For
instance, female labor force participation is argued to decline with strong family ties because
it is associated with a more traditional view of a woman’s role in society (Alesina and
Giuliano, 2010). However, in our view, family ties not only matter for individuals’ values.
They can also play a key role in the establishment of economically valuable networks (see
Wahba and Zenou, 2005, and references therein) via, for instance, marriages (Rosenzweig
and Stark, 1989; Luke et al., 2004; Wang, 2011). Such family-based networks reflect a
1 Gërxhani (2004) and Cervellati et al. (2014) make a similar argument for the importance of accounting for
heterogeneous effects across countries in different settings.
2
capacity to extend one’s own personal connections, and might thereby entail economically
valuable opportunities (Montgomery, 1991, Munshi, 2003, Wahba and Zenou, 2005).2
Rosenzweig and Stark (1989), for instance, show that marital arrangements, which establish a
new network with the family of the spouse, mitigate farmers’ income volatility in rural India.
Luke et al. (2004) similarly find that family networks, again organized around marriages,
increase individuals’ performance in urban labor markets in both Kenya and India. In an
interesting recent contribution based on Chinese data, Wang (2011) uses the exogenous shock
of the death of the father-in-law to show the causal effect of family networks on earnings; the
loss of the father-in-law is found to induce a 7% decrease in a man’s earnings.
Crucially, family networks are likely to matter more for economic outcomes in developing
countries. At a risk of generalization, developing countries tend to be characterized by
weaker formal institutions (for a recent discussion, see Dreher et al., 2014). As informal
institutions – such as the family – become a substitute for formal institutions when the latter
are incomplete or when individuals are unable to achieve them (Gërxhani, 2004; Helmke and
Levitsky, 2004; Dreher et al., 2014), family networks can play a central role for regulating
individuals’ social and economic needs in such settings. This implies, however, that any
positive effect of family networks on labor market outcomes (Rosenzweig and Stark, 1989;
Luke et al., 2004; Wang, 2011) will be particularly forceful in developing countries. Even
when there is a general negative impact of traditional family values on LFP (as argued in
Alesina and Giuliano, 2010, 2013; Alesina et al., 2013), the overall effect of strong family
ties thus is likely to still vary across countries depending on their level of economic and
institutional development. Specifically, one would expect to observe cross-country
2 A similar network mechanism has recently also been brought forward to explain the formation and success of
political dynasties (Dal Bó et al. 2009; Daniele and Geys, 2014). Likewise reflecting the key economic role of
social networks, Mastrobuoni (2014) convincingly documents the economic value of network connections
within the Italian-American mafia in the 1960s.
3
heterogeneity in the effect of family ties, with its disruptive effects on economic behavior
weakening, or even being reversed, in less affluent, underdeveloped countries.
A similar argument can also be made for the link between strong family ties and
individuals’ social or interpersonal trust. The commonly-held reasoning behind their negative
relation is that strong family ties may reduce the need for social contacts with people outside
the family, because individuals’ needs are taken care off within the family (Ermisch and
Gambetta, 2010; Alesina and Giuliano, 2013).3 This closed network subsequently undermines
individuals’ ability to judge others’ trustworthiness (thereby reducing social trust), and
decreases their access to opportunities outside the family (impeding their economic
progress).4 Nevertheless, this line of argument again pays too little attention to the potential
role of family networks in developing, low-income countries. In such settings, as mentioned
above, the network effects induced by strong family ties emphatically increase people’s
contact possibilities outside the family and buttress the availability of economically valuable
opportunities (Rosenzweig and Stark, 1989; Luke et al., 2004; Wang, 2011). As before,
therefore, the effect of strong family ties on social trust is likely to display cross-country
heterogeneity depending on countries’ level of economic and institutional development.
Section 2 describes the dataset and estimation strategy employed to test for cross-country
heterogeneity in the effect of family ties on economic outcomes. The main findings are
summarized in Section 3. Finally, Section 4 contains a concluding discussion.
3 Schoeni (2001) similarly argues that extensive social welfare provisions may be responsible for crowding out
family support networks. 4 A large literature links social trust to economic growth and development. For a recent discussion of this
extensive literature (and an integrative contribution to it), see Bjørnskov and Méon (2013).
4
2. Data and estimation approach
Following Alesina and Giuliano (2010, 2011, 2013), our empirical analysis is based on data
from all currently completed waves of the EVS/WVS.5 Overall, a total of 99 countries and
roughly 220.000 individuals are covered in this dataset (though not all countries are
represented in every wave). Our empirical approach to these data is taken directly from
Alesina and Giuliano (2010, 2013), and is given in the following regression equation (where i
refers to individuals and t to survey waves):
Yi,t = a + b1 Family Tiesi,t + b2 Controlsi,t + ei,t (1)
Yi,t is a vector containing measures of young, female and elderly labor force participation
(i.e. indicator variables equal to 1 if the respondent is active in the labor market, 0 otherwise),
geographical mobility (i.e. indicator variable equal to 1 if the respondent is co-resident in
his/her parents’ house; Alesina and Giuliano, 2010) and social trust (i.e. indicator variable
equal to 1 if the respondent believes that most people can be trusted).6 Note that young
(elderly) individuals are thereby defined as between 15 and 29 (55 and 65) years of age.
Our measure of the strength of family ties combines information from three separate survey
questions (Bertrand and Schoar, 2006; Alesina and Giuliano, 2010, 2011, 2013; Alesina et
al., 2013). These are, respectively, related to family’s importance to the respondent, his/her
evaluation of the duties and responsibilities of parents towards children, and his/her
5 Alesina and Giuliano (2010) deal with the problem of reverse causality – i.e. the fact that individuals suffering
economic misfortune need to rely more heavily on their family’s resources, which might impact their
perception of family ties – by looking at inherited family ties among a subsample of second-generation
immigrants. The key identifying assumption is that the strength of family ties is generally persistent across
generations and is related to historical family structures (Galasso and Profeta, 2012). To preserve space, and
because we rely on the same dataset as Alesina and Giuliano (2010, 2013), our analysis will not repeat these
causality tests (see also Alesina and Giuliano, 2013). 6 The actual survey question on generalized trust reads: “Generally speaking would you say that most people can
be trusted or that you can’t be too careful in dealing with people?”. Respondents can either agree with the
former part of the statement (in which case they are coded as 1 in our trust measure), or with the latter part of
the statement (in which case they receive value 0).
5
evaluation of children’s duties and responsibilities towards their parents.7 We combine these
responses using a principal components analysis (PCA), and employ the first principal
component as our main explanatory variable. As shown in detail by Alesina and Giuliano
(2013), Scandinavian and Anglo-Saxon countries rank lowest on the resulting scale, while a
heterogeneous group of African, Asian and South American countries rank highest.
The vector Controlsi,t contains variables reflecting individuals’ sex, age, age squared,
marital status and education, as well as country and survey fixed effects and the interaction of
survey and country fixed effects. Although this follows Alesina and Giuliano (2010, 2013),
we also experimented with a more extended set of controls incorporating individuals’ income
and religiosity as well as regional fixed effects (at NUTS2 for Europe). As this does not
affect any of the inferences below, we do not report these additional results in detail here
(available upon request). Summary statistics for all variables are provided in Table 1.
________________
Table 1 about here
________________
To assess our key hypotheses, we run equation (1) for different subcategories of countries
depending on their level of economic and institutional development using the World Bank
development classification.8 This classification is based on Gross National Income (GNI) per
capita, and separates four groups of countries: i.e. low income, low-medium income, upper-
7 Specifically, the first question asks “How important is family in your life?”, and takes values from 1 (not
important at all) to 4 (very important). The second question measures respondents’ agreement with one of two
statements: (1) “One does not have the duty to respect and love parents who have not earned it”; (2)
“Regardless of what the qualities and faults of one’s parents are, one must always love and respect them”. The
third and final question again measures respondents’ agreement with one of two statements: (1) “Parents have
a life of their own and should not be asked to sacrifice their own well-being for the sake of their children”; (2)
“It is the parents’ duty to do their best for their children even at the expense of their own well-being”. 8 For more information on this classification, see http://data.worldbank.org/about/country-classifications/a-short-
history. Note also that while we report only the split-sample results in detail below, models with interaction
effects provide similar results. For ease of interpretation, Figure A.1 visualizes the marginal effect of family
ties across the different country groups in these interaction models, which are estimated using multilevel
models – where individuals (level 1) are nested within countries (level 2) and the family ties variable is
interacted with the World Bank classification index (details available upon request).