Intertwined vines: Homophily among French Huguenots in eighteenth-century Cape Colony

Homophily refers to the observation in networks that more connections are formed between nodes who share a similar background characteristic. While empirical evidence of homophily exists in marriage patterns, friendships, and human capital investment, I investigate another economic aspect where homophily is present -- financial transactions. Specifically, whether trading on credit was more prominent among settlers who shared the same European nationality when settling at the Cape Colony during the eighteenth century. There are three main European nationalities that settled here: Dutch, French, and German. The historiography of the Cape Colony suggests that cultural assimilation between these different cultures happened rapidly and that homophily should not be significant. However, there is strong evidence of homophily in trading throughout the entire seventeenth century. I explore three possible reasons for this homophily: wealth and trading with family. While wealth shows virtually correlation with homophily, familial trading increases at the same time as the overall levels of homophily increase at the Cape. This paper has three important contributions. First, socio-economic institutions change slower than expected, even when cultural assimilation takes pace. Second, this network effect matters even also in financial markets and can overcome asymmetric information. And, third, a common background is a stronger predictor of financial interaction than surpasses wealth and geography in pre-industrial societies.