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Contingencies in the relationship between economic freedom and human development: the role of generalized trust

Johan Graafland

Journal of Institutional Economics, 2020, vol. 16, issue 3, 271-286

Abstract: An increasing volume of literature has shown that human development is related to economic institutions. But previous literature has not considered that the effects of economic institutions on human development are contingent on culture. In this study, we contend that the effects of economic freedom (as an indicator of economic institutions) on human development are dependent on generalized trust (as an indicator of culture). Using panel analysis on a sample of 29 OECD countries during 1990–2015, we find that generalized trust positively moderates the relationship between economic freedom and human development. The policy implication is that free market institutions foster human development only in high trust societies, not in low trust countries.

Date: 2020
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