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Trust in Transition: Cross-country and Firm Evidence

  • Martin Raiser

    (World Bank)

  • Alan Rousso

    (EBRD)

  • Franklin Steves

    (EBRD)

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 more important determinants of inter-firm trust than 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 inter-firm trust than firm-level effects.

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File URL: http://econwpa.repec.org/eps/othr/papers/0401/0401007.pdf
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Paper provided by EconWPA in its series Others with number 0401007.

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Length: 22 pages
Date of creation: 23 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpot:0401007
Note: Type of Document - pdf; prepared on Win2000; pages: 22; figures: 1
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Blanchard, Olivier & Kremer, Michael R., 1997. "Disorganization," Scholarly Articles 3659691, Harvard University Department of Economics.
  2. Edward L. Glaeser & Jose Scheinkman & Andrei Shleifer, 2002. "The Injustice of Inequality," Harvard Institute of Economic Research Working Papers 1967, Harvard - Institute of Economic Research.
  3. 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.
  4. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
  5. Simon Johnson & John McMillan & Christopher Woodruff, 1999. "Contract Enforcement in Transition," CESifo Working Paper Series 211, CESifo Group Munich.
  6. Kornai, Janos, 1993. "The Evolution of Financial Discipline under the Postsocialist System," Kyklos, Wiley Blackwell, vol. 46(3), pages 315-36.
  7. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
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