Social networks and business investment in emerging urban centres in rural Tanzania

Abstract

Background: Business investments in rural areas of developing countries have been constrained by limited infrastructure and financial, institutional and policy support. Proximate social networks have emerged as decision-making support structures; however, empirical evidence is limited to formal companies in urban areas. Aim: This study examines how strong and weak social networks influence business investment decisions in emerging urban centres (EUCs) in rural areas. Setting: This study was undertaken in Ilula and Madizini, which are small towns in rural areas of the Iringa and Morogoro regions in Tanzania. Methods: Quantitative methods employing Gephi Geolayout and a bivariate probit model, supported by qualitative data, were used to examine spatiality and the influence of social networks on business investment decisions based on a random sample of 755 businesses. Results: The study found that both strong and weak social network ties influenced investment decisions in general wholesale-retail trading, food crop trading and transportation businesses. Institutions, however, deterred these investment decisions. Additionally, the reliance on strong and weak social ties in decision-making decreased as business owners’ experience, education and capital size increased. Conclusion: Transportation routes and exchange hotspots are instrumental in shaping the spatial nature of EUC business social networks. Social networks of strong and weak ties influence the choices of business investment. However, the importance of social network relations varies depending on human capital endowment and business-specific characteristics. Contribution: This study endorses strengthening social networking and institutional environment as a base to support rural business investment and networks, especially around agricultural value chains.