Accounting for Heterogeneity in Network Formation Behaviour: An Application to Vietnamese SMEs

Network formation is often characterized by homophily, i.e. the tendency of agents to connect with others who have similar attributes. However, while most agents are homophilous, others could be heterophilous; they aim to create ties with dissimilar agents. This study provides empirical evidence supporting this hypothesis by applying a random coefficient approach to data on the information-sharing networks of small- and medium-sized Vietnamese enterprises. In particular, we find that firms tend to form heterophilous links with respect to business type and gender ratio. One possible reason for the heterophily is that firms can obtain useful and performance-improving information from such dissimilar partners.