The Role of Social Networks in International Trade and Economic Development

Abstract

In an era of global trade, cultural differences and trade barriers persist, impacting international business transactions among companies. However, research has revealed that individuals within the same social network, regardless of their physical location, experience a mitigation of information asymmetry. This, in turn, facilitates the establishment of robust cross-border business relationships and enhances the efficiency of international trade. This effect is particularly pronounced among immigrants, who often maintain social networks that bridge cultural gaps and foster social connections. Such networks can markedly amplify the volume of trade for businesses. Moreover, these social networks play a pivotal role in facilitating market entry. Sharing a common social network serves as a trust-building mechanism in cross-border trade, enabling enterprises to share transaction risks and decrease the unpredictability of transactions. The study integrates the latest research on the pivotal role of social networks in global business. The findings demonstrate that ethnic networks, such as those formed by Chinese immigrants, significantly enhance trade volumes, particularly in product categories with high information asymmetry. Greater levels of social connectivity within these networks are associated with substantially higher bilateral trade volumes, especially for goods facing significant information friction. Immigrant networks serve not only as economic connections but also as cultural and social conduits crucial for promoting international trade. In conclusion, social networks mitigate information asymmetry and facilitate rapid expansion into overseas markets for businesses. They also optimize supply chain management by monitoring market dynamics and consumer feedback in real time, while clearly identifying market opportunities.