Free to Trust? Economic Freedom and Social Capital
Niclas Berggren () and
Henrik Jordahl ()
No 64, Ratio Working Papers from The Ratio Institute
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)
Pages: 31 pages
New Economics Papers: this item is included in nep-cbe, nep-law, nep-ltv and nep-reg
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Published in Kyklos, 2006, pages 141-169.
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Journal Article: Free to Trust: Economic Freedom and Social Capital (2006)
Working Paper: Free to Trust? Economic Freedom and Social Capital (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ratioi:0064
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