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Trust In Transition: Cross Country And Firm Evidence

Author

Listed:
  • Martin Raiser

    ()

  • Alan Rousso

    ()

  • Franklin Steves

    ()

Abstract

This paper uses data from a large survey of firms across 26 transition countries to examine the determinants of trust in the transition process. We first introduce a new measure of trust between firms: the level of prepayment demanded by suppliers from their customers in advance of delivery. Using this new measure, we confirm earlier findings that trust is higher where firms have confidence in third party enforcement through the legal system. However, the fairness and honesty of the courts are a more important determinant of interfirm trust than are the courts??? efficiency or ability to enforce decisions. We then examine the role of business networks in building trust and find that networks based around personal ties ??? family and friends ??? and business associations actively promote the development of trust, while business networks based on enterprise insiders and government agencies do not. Finally, we find that country-level effects are significantly more important determinants of interfirm trust than are firm-level effects.

Suggested Citation

  • Martin Raiser & Alan Rousso & Franklin Steves, 2004. "Trust In Transition: Cross Country And Firm Evidence," William Davidson Institute Working Papers Series 2004-640, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2004-640
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/40026/3/wp640.pdf
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    References listed on IDEAS

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    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    3. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
    4. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1091-1126.
    5. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
    6. Kornai, Janos, 1993. "The Evolution of Financial Discipline under the Postsocialist System," Kyklos, Wiley Blackwell, vol. 46(3), pages 315-336.
    7. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
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    Citations

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    Cited by:

    1. Besnik A. Krasniqi & Sameeksha Desai, 2016. "Institutional drivers of high-growth firms: country-level evidence from 26 transition economies," Small Business Economics, Springer, vol. 47(4), pages 1075-1094, December.
    2. Jens Prüfer, 2016. "Business Associations and Private Ordering," Journal of Law, Economics, and Organization, Oxford University Press, vol. 32(2), pages 306-358.
    3. Berulava, George, 2013. "Do Trust-Based Relations Improve Firm’s Performance? Evidence from Transition Economies," MPRA Paper 48430, University Library of Munich, Germany.
    4. Polterovich, Victor & Tonis, Alexander, 2005. "Hiring Strategies and the Evolution of Honesty," MPRA Paper 20053, University Library of Munich, Germany.
    5. Svetlana Avdasheva & Nadezhda Goreyko, 2010. "Governance Structures in Russian manufacturing: assessment using sample survey data," UCL SSEES Economics and Business working paper series 112, UCL School of Slavonic and East European Studies (SSEES).
    6. Afandi, Elvin & Kermani, Majid, 2012. "The Relationship between Trust and a Firm’s Access to Financing: Evidence from Transitional Countries," MPRA Paper 46998, University Library of Munich, Germany.
    7. Voeten, J. & de Haan, J.A.C. & Roome, N. & de Groot, G.A., 2015. "Understanding responsible innovation in small producers’ clusters in Vietnam through Actor Network Theory (ANT)," Other publications TiSEM c111d44f-b8ce-4885-837d-7, Tilburg University, School of Economics and Management.
    8. Stefano Bartolini & Małgorzata Mikucka & Francesco Sarracino, 2017. "Money, Trust and Happiness in Transition Countries: Evidence from Time Series," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(1), pages 87-106, January.
    9. Adnan Efendic & Tomasz Marek Mickiewicz & Anna Rebmann, 2013. "Growth Aspirations and Social Capital: Young Firms in a Post-Conflict Environment," UCL SSEES Economics and Business working paper series 122, UCL School of Slavonic and East European Studies (SSEES).
    10. Maria Litvinova & Maria Luigia Segnana, 2015. "Firm boundaries in Transition countries. The influence of technological and institutional links," DEM Working Papers 2015/05, Department of Economics and Management.
    11. Simona Mateut, "undated". "Reverse trade credit - the use of prepayments by French firms," Discussion Papers 11/12, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    12. Berulava George & Lezhava David, 2007. "The impact of trust on the mode of transaction governance between manufacturer and distributor," EERC Working Paper Series 07-05e, EERC Research Network, Russia and CIS.
    13. Svatopluk Kapounek, 2017. "The Impact of Institutional Quality on Bank Lending Activity: Evidence from Bayesian Model Averaging," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(5), pages 372-395, October.
    14. repec:hig:fsight:v:11:y:2017:i:3:p:11-24 is not listed on IDEAS
    15. Gillanders, Robert & Neselevska, Olga, 2016. "Public Sector Corruption and Trust in the Private Sector," MPRA Paper 71020, University Library of Munich, Germany.

    More about this item

    Keywords

    Trust; Prepayment; Courts; Business Networks;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • P59 - Economic Systems - - Comparative Economic Systems - - - Other

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