Free to Trust? Economic Freedom and Social Capital

Niclas Berggren () and Henrik Jordahl ()

No 64, Ratio Working Papers from The Ratio Institute

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 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.

Keywords: social capital; trust; economic freedom; rule of law; property rights; legal system (search for similar items in EconPapers)
JEL-codes: K42 O40 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-law, nep-ltv and nep-reg
Date: 2005-01-14
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Published in Kyklos, 2006, pages 141-169.

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Working Paper: Free to Trust? Economic Freedom and Social Capital (2005)
Journal Article: Free to Trust: Economic Freedom and Social Capital (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:ratioi:0064

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