Sunday, May 06, 2007

Paper by Kaivan Munshi on the sociology of the diamond trade

I am fascinated by diamonds for two reasons. First, the part to part variation makes diamonds a place where standard techniques for organising markets and obtaining financial market liquidity don't apply. Second, diamonds was India's first experiment in globalisation: the trade barriers and the capital controls were eliminated, and Indian firms succeeded on a world scale. So I find it interesting to figure out what happened and why. You may like to see my earlier post on the diamond trade.

Kaivan Munshi has written a fascinating paper titled From Farming to International Business: The Social Auspices of Entrepreneurship in a Growing Economy [link].

The abstract reads: Entrepreneurship has been traditionally concentrated in the hands of a few small communities in most developing economies. As these economies restructure, it is evident that these communities will be unable to satisfy the increased demand for new entrepreneurs. The analysis in this paper suggests that new business networks will compensate for the weak family background of first-generation entrepreneurs under some circumstances, supporting occupational mobility even in industries with significant barriers to entry. Using new firm-level data on the Indian diamond industry, the empirical analysis documents the important role played by an underlying community network in the expansion from agriculture to international business in one historically disadvantaged community over the course of a single generation.

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