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Free to Trust: Economic Freedom and Social Capital

PublicationArticle (with peer review)
Ekonomisk frihet, Företagandets villkor, Förtroende, Niclas Berggren, Socialt kapital

Abstract

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Related content: Working Paper No. 64

Berggren, N. & Jordahl, H. (2006). ”Free to Trust: Economic Freedom and Social Capital.”Kyklos, 59(2): 141-169.

Based on content

Does Free Trade Really Reduce Growth? Further Testing Using the Economic Freedom Index
Article (with peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2005

Published in
Abstract

While studies of the relationship between economic freedom and economic growth have shown it to be positive, significant and robust, it has rightly been argued that different areas of economic freedom may have quite different effects on growth. Along that line, Carlsson and Lundström (2002) present the surprising result that “International exchange: Freedom to trade with foreigners” is detrimental for growth. We find that “Taxes on international trade” seems to drive this result. However, using newer data and a more extensive sensitivity analysis, we find that it is not robust. Least Trimmed Squares-based estimation in fact renders the coefficient positive.

Related content: Working Paper No. 25

Free to Trust: Economic Freedom and Social Capital
Artikel (med peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2006

Published in
Abstract

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Related content: Working Paper No. 64

Tillitens ekonomi
Article (without peer review)Publication
Berggren, N. & Jordahl, H.
Publication year

2006

Published in
Abstract

På senare år har tillit – dess förekomst, orsaker och verkningar – kommit att studeras alltmer inom nationalekonomin. I denna artikel presenteras empiriska resultat, baserade på data från enkäter och experiment, inom detta forskningsområde. Resultaten visar att tilliten stärks av en hög homogenitet i befolkningen, en hög utbildningsnivå och en högkvalitativ rättsstat. Tillit ger i sin tur lägre transaktionskostnader och verkar leda till högre ekonomisk tillväxt. Dessutom finns det indikationer på att tillit gör oss människor lyckligare.

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