Saving Function Of Social Network

Social Network,a kind of social capital,exists in every economy and plays a very important role in society and economy,especially in rural areas of developing economies,or less-developed areas of developed economies.It has important effect on resource allocation,and technology and information transfer.Present literature,however,only focuses on its role played in allocating financial resources,and only interests in its effect on one resource allocation under credit constraint,without providing a full picture of the role played by social network.What's more,present literature does not provide a general system to analysis the effect of social network on household saving rate,and to investigate the effect of social network on household saving activities,the trade-off between formal and informal loan,transfers expense/income to/from social network members,exchange of labor service between social network members,and consumption of tabacco and wine to sustain the social network.At the same time,present empirical studies do not resolve the problem of endogenous problem of social network in OLS regressions.So,this paper will propose a theoretical hypothesis,holding that social network has an important function as saving channels,and a household embedded in a social network "pay more but claim less" from its social network members,i.e.,in daily life,it contributes more resources to its network members,but only asks for help under emergency cases or when facing huge negative shocks.Based on this theoretical hypothesis,this paper steps further to propose the following four sub-hypotheses.First,a household embedded in social network would pay more but claim less resources to/from social network members,as a result,those households with more social network would have higher saving rate.Second,when weighing and balancing between formal and informal loan,household with bigger social network would have lower share of informal loan in total loan.Third,households with bigger social network would donate more money/gift/labor service to social network member,which is saved resources in network.Fourth,households with bigger social network would expense more money on tabacco and wine to sustain the social network.Then,employing the nationally representative rural household samples from China Household Income Project survey in 2002,this paper empirically tests these hypotheses,and uses Instrument Variable to deal with the endogenous problem of social network in OLS models.We fend that these theoretical hypothesis cannot be rejected.Contribution of this paper relies on the following respects:first,this paper proposes a theoretical hypothesis explaining the saving function of social network,rather than the social collateral function only,which contributes the literature on social network;Secondly,using Instrument Variable technology,this paper empirically tests four sub-hypotheses and finds that these hypotheses cannot be rejected.