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Trusting only whom you know, knowing only whom you trust: the joint impact of social capital and trust on individuals’ economic performance and happiness in CEE countries

This paper demonstrates that bridging and bonding social capital as well as social trust interdependently affect individuals’ earnings and happiness. Based on crosssectional World Values Survey 2000 data on individuals from eight Central and Eastern European countries (CEECs), we provide evidence that majority of citizens of these countries have likely fallen in a “low trust trap” where deficits of bridging social capital and trust reinforce each other in lowering individuals’ incomes and happiness. Apart from gradual modernization and economic growth, also increases in labor market participation are identified as a potential way out of this “trap”, because employed people in CEECs tend to have statistically significantly more bridging social capital and more trust. While assessing robustness of our empirical results, we have found a high risk of regressor endogeneity and omitted variables bias, generally overlooked in earlier studies. These issues are carefully addressed in the current contribution.

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Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 94.

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Length: 36
Date of creation: 2011
Date of revision:
Handle: RePEc:nbp:nbpmis:94
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  1. Alberto Alesina & Paola Giuliano, 2007. "The Power of the Family," NBER Working Papers 13051, National Bureau of Economic Research, Inc.
  2. Growiec, Katarzyna & Growiec, Jakub, 2009. "Social Capital, Trust, and Multiple Equilibria in Economic Performance," MPRA Paper 19518, University Library of Munich, Germany.
  3. Growiec, Jakub & Growiec, Katarzyna, 2007. "Social Capital, Well-Being, and Earnings: Theory and Evidence from Poland," MPRA Paper 7071, University Library of Munich, Germany.
  4. Heckman, James J. & Lochner, Lance John & Todd, Petra E., 2003. "Fifty Years of Mincer Earnings Regressions," IZA Discussion Papers 775, Institute for the Study of Labor (IZA).
  5. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  6. Sjoerd Beugelsdijk & Sjak Smulders, 2003. "Bridging and Bonding Social Capital: which type is good for economic growth?," ERSA conference papers ersa03p517, European Regional Science Association.
  7. repec:tpr:qjecon:v:112:y:1997:i:4:p:1251-88 is not listed on IDEAS
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