The informal sector is ubiquitous in Africa and other emerging markets. The performance of these informal firms can be significantly influenced by informal institutions. But what are the deep roots of informal institutions? And how have they interacted with the colonial shocks in Africa?
In our new study, published in the Strategic Entrepreneurship Journal, we explore how a specific pre-colonial family institution – the tradition of cousin marriage – and the subsequent shocks of colonisation jointly impact the performance of contemporary informal firms. This can help managers and policy makers enhance business performance in regions like sub-Saharan Africa.
What is Cousin Marriage Tradition?
In this paper, we investigated how business outcomes are affected by one particular aspect of family systems – either the suppression or support of cousin marriage. We follow Henrich (2020) in defining the latter, as the practice of marriage within a specific kinship group (the ingroup). This practice accepts or even supports marriages between close cousins, reinforcing kinship ties, creating dense networks of family connections and resulting in a strong group identity. In contrast, exogamy, practiced in WEIRD societies, prohibits cousin marriage and encourages marriage outside the ingroup, weakening kinship ties.
We examined data from surveys of over 3,000 informal entrepreneurs from eight countries in sub-Saharan Africa. Data were collected by the World Bank between 2011 and 2020. As these informal businesses were not registered with the government, their performances were mostly shaped by family systems, such as the practice of marriage, rather than government regulations or rule of law.
Persistent Effects of the Cousin Marriage Tradition
We found that when additional financial resources from family members or friends were available, we observed a larger increase in employment but a smaller increase in revenue among informal businesses in ethnic areas with the cousin marriage tradition relative to those without. This is consistent with our expectation that when people have a strong in-group identity, they view it as their responsibility to create jobs for people that are part of their in-group. Business owners therefore use additional resources to hire family members – even when it is not optimal from the financial point of view. In areas without the cousin marriage tradition, people tend to be more individualistic and informal businesses are more revenue-driven.
Interestingly, we find that the effects of the cousin marriage tradition can be persistent. Even if cousin marriage is no longer practiced contemporarily in a given area, the outlook and cultural norms associated with it, attributing the highest importance to the in-group, are likely to persist. It is because these cultural norms can be transmitted from parents to children over generations.
Evolution of the Cousin Marriage Tradition: Colonial Legacy
Cultural norms associated with the cousin marriage tradition can also evolve when societies go through momentous changes. In places where these two cultures clash, we often see a turn towards the more individualistic exogamy model. We verified this idea by investigating the large-scale European colonization in Africa as a cultural intervention.
We found that the cousin marriage tradition was especially weakened in former British colonies, because the legal systems and administrative practices of the British Empire were largely based on British individualism, a cultural trait that is particularly alien to the cousin marriage tradition.
Furthermore, we found some evidence of the impact of the large-scale European missionary activities in colonial Africa on the cousin marriage tradition, but it is not clear-cut. This is probably because Christianity faced strong competition from Islam and mass conversions in Africa were often based on loose requirements.
Managerial Implications
Our research has implications for managerial practice. We document that the differences in business purposes seem to be affected by historical family systems. It is therefore essential for business owners and managers to consider the deep roots of the social and cultural norms of the communities with which they interact. The managerial implications also go beyond the informal sector. For example, multinational firms operating in sub-Saharan Africa can benefit from a more thorough understanding of the continent’s considerable ethnic and cultural diversity. In addition, multinational firms should be aware that their informal subcontractors might have different business purposes because of their exposure to different informal institutions.
