Free to Trust: Economic Freedom and Social Capital

29 Pages Posted: 8 May 2006

See all articles by Niclas Berggren

Niclas Berggren

Research Institute of Industrial Economics (IFN); University of Economics, Prague - Faculty of Economics and Public Administration

Henrik Jordahl

Research Institute of Industrial Economics (IFN); CESifo (Center for Economic Studies and Ifo Institute); IZA

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.

Suggested Citation

Berggren, Niclas and Jordahl, Henrik, Free to Trust: Economic Freedom and Social Capital. Kyklos, Vol. 59, No. 2, pp. 141-169, May 2006. Available at SSRN: https://ssrn.com/abstract=898251 or http://dx.doi.org/10.1111/j.1467-6435.2006.00324.x

Niclas Berggren (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/nb

University of Economics, Prague - Faculty of Economics and Public Administration ( email )

nám. W. Churchilla 4
Praha, 130 67
Czech Republic

Henrik Jordahl

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

HOME PAGE: http://www.ifn.se/hj

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

IZA ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
8
Abstract Views
835
PlumX Metrics