Spontaneous Markets, Networks, and Social Capital: Lessons from Africa

Abstract

Recent years have witnessed a renewed interest in institutions as an essential ingredient for growth (The World Bank 2002). There is now an abundant literature documenting the role that institutions play in the development process (e.g. Keefer and Knack 1997, Acemoglu, Johnson and Robinson 2002). Market institutions in particular appear central to this process (e.g. North 1973, Acemoglu, Johnson and Robinson 2005), so much so that they are now commonly seen as a critical component of a good business environment. However, beyond generalities about courts and the respective merits of common law versus roman law, little practical advice is available on how to improve market institutions. Detailed analysis of how markets operate in practice has been provided by John McMillan, Chris Woodru¤, and coauthors for Vietnam and Eastern Europe (e.g. McMillan and Naughton 1996, Johnson, McMillan and Woodru¤ 2002, Johnson, McMillan and Woodru¤ 2000, McMillan and Woodru¤ 2000, McMillan and Woodru¤ 1999a, McMillan and Woodru¤ 1999b) and by myself –with various coauthors –for Sub-Saharan Africa (e.g. Fafchamps 2004, Bigsten, Collier, Dercon, Fafchamps, Gauthier, Gunning, Isaksson, Oduro, Oostendorp, Patillo, Soderbom, Teal and Zeufack 2000, Fafchamps 2002b, Fafchamps 2003, Fafchamps and Minten 1999, Fafchamps and Minten 2002, Fafchamps and Minten 2001). What

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