Free to Trust: Economic Freedom and Social Capital

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 in an attempt 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.

Social capital renewal and the academic performance of international students in Australia

“…The growth in the number of international students 1 On the positive association between social capital and economic growth see, for example, Knack and Keefer (1997), Quentin Grafton, Knowles and Dorian Owen (2004) and Beugelsdijk and van Schaik (2005), although for a contrary view, see Casey and Christ (2005). On the relationship between social capital and trade, stability, political and civic involvement, crime, health and happiness see, for example, Bjornskov (2003) and Berggren and Jordahl (2006). On the impact of social capital on secondary school achievement see, for example, Beaulieu et al…”

Policy Implementation in Italy

“…There is some discussion as to whether causality runs from effective legal institutions to a high level of trust, or vice versa. " [I]f trust in friends is generalized so that people assume the good will of strangers, a society can economize on some of the coercive apparatus of the state" (Rose Ackermann, 2001, cited in Berggren andJordahl, 2006). The opposite causality is also plausible however, so that there is some hope that significant improvements in civil justice can provoke self-reinforcing effects through higher levels of trust, resulting in less recourse to justice and lower costs for society.…”

Institutional Investors and Cross-Border Mergers and Acquisitions: the 2000-2012 Period

“…1 The investment freedom index is part of the economic freedom index, which has been widely used in studies in different areas, for example, Meyer et al (2009), Bengoa andSanchez-Robles (2003), Sinani (2009), Herzer (2012), Easton andWalker (1997), De Haan andSturm (2000), Heckelman and Stroup (2000), Berggren and Jordahl (2006), Pasiouras et al (2011), andBeccalli andFrantz (2013).…”