Trust as societal capital: economic growth in European regions

Abstract

The neo-institutional approach to economic phenomena has forwarded the institutional framework within a society as a fundamental determinant of economic performance. Cultural characteristics, also referred to as "societal capital", have gained specific attention in this respect. Basically, a culture that is characterised by trust is increasingly considered as a competitive advantage. This paper fits in this neo-institutional perspective. We outline an integrated conceptual framework that articulates the direct and indirect channels through which a culture may influence the economic record. Confining to economic growth as an indicator of economic performance and using data from the European Value Study, we subsequently investigate empirically the link between cultural values and economic performance, hereby focusing on a European sample that includes regions as units of observation. This empirical evidence indeed seems to confirm the trust-growth hypothesis. Building on this result, we finally consider a number of possible policy implications. We hereby envisage the government as the main designer of the formal institutional framework within which economic agents interact. In addition, we emphasise the government’s exemplary role as a visible emanation of societal values.