The Interaction of Formal and Informal Institutions in Development: the Ethiopian Commodity Exchange and Social Capital in Sesame Markets
Abstract: We explore whether the creation of the Ethiopian Commodity Exchange (ECX) and its formal monitoring and enforcement institutions has affected social capital and trust in the Ethiopian segment of the sesame value chain. Consistent with a simple theoretical marketing model, our panel data suggest this is indeed the case. Trade in sesame is increasingly governed by formal rather than informal institutions, and in response traders have broadened their trading network, rely more frequently on traders with whom they do not have social relations, and have reduced the extending of credit that cements personalized relationships. They also have lower levels of trust in the intentions and capabilities of their trading partners, and attach less weight to trust.
