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The co-evolution of social capital and financial development

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  • Marc Sangnier

    ()
    (Paris School of Economics)

Abstract

This paper documents the co-evolution of social capital, measured as generalized trust, and financial development over the twentieth century. I use cross generations inherited trust of Americans with foreign ancestors to track trust in their home country in 1913 and 1990. The paper documents a positive cross-section relationship between trust and financial development in 1913. Then, I show that increasing trust is also associated with increasing financial development at the country level over the twentieth century. In other words, countries that experienced larger improvements in trust also experienced a stronger financial development. These results are robust to the introduction of real GDP per capita and trade openness as alternative determinants of financial development.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I2-P100.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 2 ()
Pages: 1063-1081

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Handle: RePEc:ebl:ecbull:eb-10-00325

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Keywords: Financial development; social capital; trust.;

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  1. Oguzhan Dincer & Eric Uslaner, 2010. "Trust and growth," Public Choice, Springer, vol. 142(1), pages 59-67, January.
  2. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 111(470), pages 295-321, April.
  3. Raquel Fernandez & Alessandra Fogli, 2005. "Culture: an empirical investigation of beliefs, work, and fertility," Staff Report, Federal Reserve Bank of Minneapolis 361, Federal Reserve Bank of Minneapolis.
  4. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(4), pages 677-716, 06.
  5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  6. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2000. "The Role of Social Capital In Financial Development," CEPR Discussion Papers 2383, C.E.P.R. Discussion Papers.
  7. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1251-88, November.
  8. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  9. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-92, December.
  10. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, Elsevier, vol. 69(1), pages 5-50, July.
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Cited by:
  1. Sangnier, Marc, 2013. "Does trust favor macroeconomic stability?," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 653-668.

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