Corruption and Social Capital

I examine the causal relation between social capital and corruption. A simple model illustrates potential mechanisms and yields testable implications, which I estimate in a sample of European countries. The estimated effect of social capital on corruption is found to be robust to the inclusion of a number of other variables and supplementing the sample with slightly older data from non-European countries. The evidence of the reverse causal direction is weak. I suggest that it is possible to build social capital through investing in education, interest in society and some level of income redistribution, which in turn reduces corruption.Corruption; Illegal behavior; Rent-seeking; Social capital

Social trust and the growth of schooling

The paper develops a simple model to exemplify how social trust might affect the growth of schooling through lowering transaction costs associated with employing educated individuals. In a sample of 52 countries, the paper thereafter provides empirical evidence that trust has led to faster growth of schooling in the period 1960-2000. The findings are robust to the inclusion of a set of control variables and being estimated using an instrumental variables approach.Trust; Schooling; Economic development

Inequality, Tolerance, and Growth

This paper argues for the importance of individuals’ tolerance of inequality for economic growth. By using the political ideology of governments as a measure of revealed tolerance of inequality, the paper shows that controlling for ideology improves the accuracy with which the effects of inequality are measured. Results show that inequality reduces growth but more so in societies where people perceive it as being relatively unfair. Further results indicate that legal quality and social trust are likely transmission channels for the effects of inequality.Inequality; Growth; Social Capital and Social Norms

The Determinants of Trust

During the last 15 years, the social capital literature has grown rapidly. In particular after Robert Putnam’s (1993) study of regional governments in Italy, the interest among economists and politologists exploded as Putnam showed that the concept could be used in quantitative explanations of a series of social and economic phenomena. The early literature was unavoidably indiscriminate as to distinguishing between the various elements of social capital, but more recent literature has stressed the need to distinguish between the constituent elements of Putnam’s social capital concept, in particular emphasizing the role of social trust. This is in turn defined as the confidence people have that strangers, i.e. fellow citizens on whom they have no specific information, will not take advantage of them (Uslaner, 2002; Bjørnskov, 2006). Using the answers to the World Values Survey question “In general, do you think that most people can be trusted?”, the by now quite substantial literature has found that social trust is associated with a set of different macroeconomic outcomes: economic growth, the rule of law and overall quality of governance, corruption, education, the extent of violent crime and subjective well-being are all influenced by the propensity of people within any nation to trust each other. The questions are therefore where trust comes from and whether or not it can be affected by public policy. The answers to these questions seem to divide researchers into two camps: the optimists and the pessimists. The former group may be best represented by Knack and Zak (2002) who estimate the effects of education and the rule of law alongside a set of factors that cannot be influenced in the short to medium run. The pessimist group, on the other hand, does not find much of a role for policy as they argue that the empirical associations between social trust and e.g. education or rule of law reflect the reverse causal direction, i.e. that trust has caused part of the cross-country differences in these factors. The aim of this paper is to assess the impact of a number of the central factors proposed in the literature and sort out which of those factors are associated with social trust. Although it to some extent rests on earlier work in Uslaner (2002) and Bjørnskov (2005), the paper differs from earlier studies in using a much larger sample of countries and including extra factors. It moreover distinguishes between factors affecting individuals’ trust radii and social distance, respectively, and explores indirect effects.trust; social capital; institutions; rule of law

How Does Social Trust Affect Economic Growth?

This paper connects two strands of the literature on social trust by estimating the effects of trust on growth through a set of potential transmission mechanisms directly. It does so by modelling the process using a three-stage least squares estimator on a sample of countries for which a full data set is available. The results indicate that trust affects schooling and the rule of law directly. These variables in turn affect the investment rate (schooling) and provide a direct effect (rule of law) on the growth rate. The paper closes with a short discussion of the relevance of the findings.Growth; Trust; Transmission mechanisms

Political Ideology and Economic Freedom.

This paper examines the association between political ideology and the size of government and quality of the legal system and regulations. A cross-country indicator of government and citizen ideology is presented. Empirical results suggest that ideologically leftwing governments increase the size of government while the long-term ideological convictions of citizens affect the size of government and the quality of the legal system and regulations. These effects depend on the degree of political competition while ideology also affects countries’ institutional response to economic crisis.Political Economy; Institutional Quality; Ideology; Social Norms

Historical Trust Levels Predict Current Welfare State Design

Using cross-sectional data for 76 countries, we apply instrumental variable techniques based on pronoun drop, temperature and monarchies to demonstrate that historical trust levels predict several indicators of current welfare state design, including universalism and high levels of regulatory freedom. We argue that high levels of trust and trustworthiness are necessary, but not sufficient, conditions for societies to develop successful universal welfare states that would otherwise be highly vulnerable to free riding and fraudulent behavior. Our results do not exclude positive feedback from welfare state universalism to individual trust, although we claim that the important causal link runs from historically trust levels to current welfare state design.Social trust; Welfare State

Is the Importance of Religion in Daily Life Related to Social Trust? Cross-Country and Cross-State Comparisons

We look at the effect of religiosity on social trust, defined as the share of a population that thinks that people in general can be trusted. This is important since social trust is related to many desired outcomes, such as growth, education, democratic stability and subjective well-being. The effect of religiosity is theoretically unclear: while all major religions call for behaving well to others, religious groups may primarily trust people in their own groups and distrust others, as well as cause division in the broader population. We make use of new data from the Gallup World Poll for 105 countries and the U.S. states, measuring religiosity by the share of the population that answers yes to the question “Is religion an important part of your daily life?”. Our empirical results, making use of regression analysis whereby we control for other possible determinants of social trust and, by using instrumental variables, for the risk of reverse causality, indicate a robust, negative effect of religiosity, both internationally and within the US.Trust; Religiosity; Religion; Social Capital

Measuring social capital – Is there a single underlying explanation?

Social capital has not been measured in any general way yet as previous surveys have used their own ad hoc methodologies. This fact is due to the heterogeneity of the very definition of social capital. Therefore, consensus concerning measurement has not yet been reached. Based on ten existing empirical approaches at the macro, meso and micro level, we inductively identify the four main variables observed this far. By applying principal components analysis, we show that four indicators measuring elements of social capital at the micro, meso and macro levels all powerfully load onto one single underlying component. However, the results from the analyses also show that Putnam’s Instrument is the variable that has the weakest association with the unitary measure of social capital and may constitute a second component.Social capital; measurement; public policy; corruption; civic participation; generalised trust; principal component analysis

Economic Freedom and entrepreneurial Activity Some Cross-Country Evidence

While much attention has been devoted to analyzing how the institutional framework and entrepreneurship impact growth, how economic policy and institutional design affect entrepreneurship appears to be much less analyzed. We try to explain cross-country differences in the level of entrepreneurship by differences in economic policy and institutional design. Specifically, we use measures of economic freedom from the Economic Freedom of the World database to examine which elements of economic policy making and the institutional framework are responsible for the supply of entrepreneurship Our data on entrepreneurship are derived from the Global Entrepreneurship Monitor. The combination of these two datasets is unique in the literature. We find that the size of government is negatively correlated with entrepreneurial activity but that sound money is positively correlated with entrepreneurial activity. Other measures of economic freedom are not significantly correlated with entrepreneurship.Economic freedom, entrepreneurship, cross-country variation