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Market-Based Solutions to Vital Economic Issues
Research
Dec 3, 2015

The Economic Value of Local Social Networks

Abstract

The idea that local social capital yields economic benefits is fundamental to theories of agglomeration, and central to claims about the virtues of cities. However, this relationship has not been evaluated using methods that permit confident statements about causality. This article examines what happens to firms that become affiliated with ‘dealmakers’—individuals who are unusually well connected in local social networks. We adopt a quasi-experimental approach, which examines firms that added exactly one new individual to their firm, combining difference-in-differences and propensity score matching to address selection and identification challenges. The results indicate that when compared to a control group, firms which link to a dealmaker are rewarded with substantial gains in employment and sales.

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