4.2 Bilateral Network Connection Scores, by Destination

reputational bias of low quality that may persist from decades earlier. Business culture could also play a part in limiting information flows, for example, if the South Asian business community tended to be relatively more modest during times of success and more secretive during downturns. Similarly, the large presence of family firms and unlisted firms, for which the public release of information is not required, could lead to a cautious attitude toward information sharing. Also, the presence of large, diversified business groups may create incentives to keep information flows within the affiliates.

SMALL BILATERAL NETWORKS AND FEW RELATIONSHIPS

Figure 4.2 reports the results of survey questions that asked whether managers felt sufficiently well connected in each of the countries to readily pursue emerging business opportunities. The results were similar to those relating to knowledge connectivity, with an average score of 1.85 (between “not at all” and “not very well” connected).

FIGURE 4.2 Bilateral Network Connection Scores, by Destination

Score a. Afghanistan

4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK Score b. Bangladesh

4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK c. Bhutan

Score 4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK

Score d. India_General

4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK Score e. North Eastern Region of India 4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK f. Maldives

Score 4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK

g. Nepal h. Pakistan i. Sri Lanka

Score 4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK Score 4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK Score

4 3 2 1 0 AFGBGDBTNINDLKAMDVNPLPAK How well informed do you feel with social and business network contacts to pursue transactions abroad?

Source: South Asian Regional Engagement and Value Chains Survey. Note: Scores range from 1 (low) to 4 (high). Colored bars represent countries whose score is 1 standard deviation above (green) or below (orange) the home country mean. As an example, the Afghanistan frame presents each of the other South Asian economies’ perceptions of how well connected it is in Afghanistan. Scores are for bilateral pairs of countries with 30 or more observations. AFG = Afghanistan; BGD = Bangladesh; BTN = Bhutan; IND = India_General (India without North Eastern Region); LKA = Sri Lanka; MDV = Maldives; NPL = Nepal; PAK = Pakistan.

Based on the height of the bars, countries felt most connected to India. Again, most countries had a network surplus with India. India’s largest network surplus was with its own NER. South Asian entrepreneurs felt least networked in Afghanistan, Pakistan, Bhutan, and Nepal. From the home country perspective, entrepreneurs from Afghanistan and Pakistan felt least connected to the region (table 4A.1). Interestingly, although Pakistan had a knowledge surplus with India (figure 4.1), it did not feel especially networked.

LACK OF BILATERAL TRUST

When entrepreneurs were asked how much trust they have in people from various South Asian countries on a scale of 1 to 4 (highest), the average bilateral score was 2.58 (between having “not that much” and “some” trust). The bilateral trust scores show the variation across pairs. Despite the earlier discussion on potential mistrust based on asymmetric size, the survey responses indicate that India is the most trusted (highest average score by destination), followed closely by Sri Lanka, India’s NER, and Bangladesh. Meanwhile, Bhutan is the most trusting country (highest score by home), followed by India, Sri Lanka, and Bangladesh (table 4A.1).

Applying the previous methodology, figure 4.3 presents the bilateral trust scores, along with trust surplus (green) and trust deficit (orange) relationships. These scores are somewhat similar to those for knowledge connectivity, but also show the trust surplus of Bangladesh with Nepal and Sri Lanka, and Pakistan’s trust surplus with Sri Lanka. In figure 4.3, two of the six trust deficit relationships—Bhutan’s score for Bangladesh and Sri Lanka’s score for Pakistan—are not likely to be a concern because they are driven by very close scores for countries (low standard deviation); thus, a trust deficit is signaled even though the absolute trust score is above the sample mean for the destination.

Trust is important for business because it lowers transaction costs by reducing search costs for trustworthy partners and the need for intensive contracting. “Personalized” trust is based on repeated interactions that reveal information about one another to the concerned parties. It is the basis for the relational contracting (informal self-enforcing agreements) that dominates many global value chain (GVC) relationships. By contrast, “generalized” trust reflects a stereotypical view of others that matters before personal interactions unfold. In the context of FDI, entrepreneurs’ trust of a foreign country’s institutions also matters.

The measure of trust in this report is closer to an indicator of “generalized trust.” The trust question used was exactly the same that was specified in the European Commission’s version of the World Values Survey, which asked the question for European Union members.8 The South Asian score, though low, is not much lower than the score of 2.84 reported by Europeans (EU-15) (Guiso, Sapienza, and Zingales 2009). (However, the EU-15 score was recorded for a random sample of the general public, as opposed to members of the business community, as in South Asia.) Another way to interpret these similar scores could be to say that bilateral mistrust among the South Asian private sector business community is not as low as is generally believed.