Inclusive and Exclusive Social Capital in the Small-Firm Sector in Developing Countries

This article explores the role of social capital created by social network membership in the small-firm sector in developing countries. Some empirical studies find that social capital hampers economic performance by creating market segmentation and inducing rent-seeking activities. Other studies conclude that social capital is an important prerequisite for productive interaction among small firms. This paper develops a concept of social capital governance which distinguishes between inclusive and exclusive social capital. It argues that inclusive social capital furthers economic performance while exclusive social capital may not. Two case studies are included.