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.
WISER Seminar Papers
- WISER's TRUST seminar is hosted on-line every Monday afternoon from 16:00 - 17:00 SA time during the teaching semester. Forthcoming seminars are available here, and past events are detailed in our archive.
- Please register on Zoom in advance of the meeting on this link.
- Participants should please read the paper (below) prior to the seminar; it will typically be available by the Friday preceding the seminar.
In this semester, the Trust seminar will explore questions of credit and debt on the African continent. In contrast with the argument that trust and confidence are synonymous (most evident in the Edelman Trust Barometer and the reporting around it), some of the most convincing scholarship argues for the direct association of trust with credit. Other researchers, studying informal African institutions, have found credit everywhere on this continent, but little that can be associated with trust. Some state institutions (like SACCOs in Kenya) and simpler penalties, like efficient bankruptcy laws, seem also to be instrumental in shaping the politics of credit. One key driver of credit systems is a secondary market, which depends in part on institutions and information that derive from (and support) fiduciaries. These are especially important in the contemporary tensions between firm-based and individualised credit systems. The seminar series this semester will explore some of these dynamics, examining how they have shaped the cultures and politics of debt and credit from the precolonial to the contemporary period.
