Trust in Transition: Cross-Country and Firm Evidence

EBRD Working Paper No. 82

22 Pages Posted: 5 Dec 2003

See all articles by Martin Raiser

Martin Raiser

European Bank for Reconstruction and Development

Alan Rousso

European Bank for Reconstruction and Development (EBRD)

Franklin Steves

European Bank for Reconstruction and Development (EBRD)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2003

Abstract

This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are more important determinants of inter-firm trust than the courts' efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties - family and friends - and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of inter-firm trust than firm-level effects.

Keywords: trust, prepayment, courts, business networks

JEL Classification: D23, D92, P31, Z13

Suggested Citation

Raiser, Martin and Rousso, Alan and Steves, Franklin, Trust in Transition: Cross-Country and Firm Evidence (October 2003). EBRD Working Paper No. 82. Available at SSRN: https://ssrn.com/abstract=475061 or http://dx.doi.org/10.2139/ssrn.475061

Martin Raiser

European Bank for Reconstruction and Development ( email )

One Exchange Square
London EC2A 2JN
United Kingdom
+44 20 7338 7231 (Phone)
+44 20 7338 6110 (Fax)

Alan Rousso

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

Franklin Steves (Contact Author)

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London EC2A 2JN
United Kingdom

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