The relationship between social capital and saving in Tanzania

Abstract: It is generally agreed that the poor in the developing world would bene t from increased saving (Dupas & Robinson, 2013b; Karlan et al., 2017; Steinert et al., 2018), and in this paper we investigate how social capital may be an important factor connected to the savings decision in the context of Tanzania. Previous literature suggests that social capital, in the form of local social networks, can help people to commit to saving and gain nancial knowledge, but also discourage saving due to con dence in that the network will help out if one ends up in unexpected nancial trouble, and also through the social expectation that any excess income or resource is to be shared within the family, or network. We estimate the overall relation between saving and the quality, as well as density, of the local social network. We do this for both formal and informal types of saving. We measure savings behavior by a binomial telling if a person has saved or not in the past 12 months. The data used is from the Financial Sector Deepening Trust in Tanzania, which also gives a unique possibility to look at cognitive skills and social capital in a joint manner related to saving. By developing a Linear Probability Model, a generally positive, but weak, link between social capital and saving is found. Since cross-sectional data is used, making causal claims is di cult. Nevertheless, based on the econometric analysis, we claim that social capital is not very important for saving. Social capital could have a modest positive effect on saving if it came along with increased skills.