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Free to Trust? Economic Freedom and Social Capital

Author

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  • Berggren, Niclas

    (Ratio Institute)

  • Jordahl, Henrik

    (Department of Economics)

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 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.

Suggested Citation

  • Berggren, Niclas & Jordahl, Henrik, 2005. "Free to Trust? Economic Freedom and Social Capital," Working Paper Series 2005:2, Uppsala University, Department of Economics.
    • Handle: RePEc:hhs:uunewp:2005_002
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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