Does Trust Matter For Entrepreuneurship : Evidence From A Cross-Section Of Countries

Kodila-Tedika, Oasis and Agbor Agbor, Julius (2012): Does Trust Matter For Entrepreuneurship : Evidence From A Cross-Section Of Countries.

Abstract

To the extent that trust is necessary to conduct informal sector business activities, its absence could possibly constrain entrepreneurial spirit and overall economic growth. This paper tests the hypothesis that differences in trust levels between countries explain the observed differences in entrepreneurial spirit amongst them. Analyzing a cross-section of 60 countries in 2010, our findings suggest that about half of the variation in entrepreneurial spirit across countries in the world is driven by trust considerations. This result is robust to regional clustering and to alternative conditioning variables. The findings of the study suggest that while formal incentives to nurture entrepreneurship must be maintained, policy-makers should also pay attention to the role of trust cultivated through informal networks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Entrepreneurship, Trust, Institutions
• Subjects: D - Microeconomics > D2 - Production and Organizations; P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification

References

Acs, A.J. and Szerb, L. 2010. The Global Entrepreneurship and Development Index (GEDI). Paper presented at “Opening Up Innovation: Strategy, Organization and Technology”, Imperial College, London, June, 2010.

Acs, Z.J. 2006. How is entrepreneurship good for economic growth? Innovations 1:1, 97-107.

Alesina, A. and La Ferrara, E. 2002. Who Trusts Others?. Journal of Public Economics, 85 (2), 20-34.

Audretsch, D.B., Keilbach, D.B. and Lehmann, E.E. (2006) Entrepreneurship and Economic Growth. Oxford: Oxford University Press.

Berggren, N. and Jordahl, H. 2006. Free to trust? Economic freedom and social capital. Kyklos, 59, 141–169.

Berggren, N., Elinder, M. and Jordahl, H. 2008. Trust and Growth: A Shaky Relationship. Empirical Economics 35, 251–274.

Bergh, A. and Bjørnskov, C. 2009. Historical Trust Levels Predict Current Welfare State Design, IAREP/SABE 2009 conference in Halifax,

Beugelsdijk, Sjoerd, Henri L. F. de Groot, and Anton B. T. M. van Schaik. 2004. Trust and economic growth: A robustness analysis. Oxford Economic Papers 56:118−34.

Bjørnskov, C. 2003. The happy few: Cross-country evidence on social capital and life satisfaction. Kyklos 56:3−16.

Bjornskov, C. 2006. Determinants of Generalized Trust: A Cross-Country Comparison. Public Choice, 130, 1-21.

Bjørnskov, C. 2009. Social Trust and the Growth of Schooling. Economics of Education Review 28, 249-257.

Bjørnskov, C. 2010. How does social trust lead to better governance? An attempt to separate electoral and bureaucratic Mechanisms. Public Choice 144: 323–346.

Bjørnskov, C. 2010. How does Social Trust lead to Better Governance? An Attempt to Separate Electoral and Bureaucratic Mechanisms. Public Choice 144, 323-346.

Bjørnskov, C. 2012. How Does Social Trust Lead to Economic Growth? Southern Economic Journal 2012, 78(4), 1–24.

Bjornskov, C. and Foss, N.J. 2008. Economic freedom and entrepreneurial activity: Some cross-country evidence. Public Choice, 134, 307-328.

Bjørnskov, C. and Méon, P-G. 2010. The productivity of trust, CEB Working Paper N° 10/042.

Bjørnskov, C., Axel Dreher and Justina A.V. Fischer. 2008. Formal Institutions and Subjective Well-Being: Revisiting the Cross-Country Evidence, KOF Working Papers No. 192.

Caree, M.A. and Thurik, A.R. 2003. The impact of entrepreneurship on economic growth. In Acs and Audretsch, eds. International Handbook of Entrepreneurial Research.

Dasgupta, P. and I. Sergaldin. Editors. 2000. Social capital: A multifaceted perspective. Washington, DC: World Bank.

Delhey, J. and Newton, K. 2005. Predicting cross-national levels of social trust: global pattern or Nordic exceptionalism? European Sociological Review, 21, 311–327.

den Butter, Frank A. G. and Robert H. J. Mosch. 2003. Trade, trust and transaction cost. Tinbergen Institute Discussion Paper No 03-082/3, Tinbergen Institute, The Netherlands.

Fafchamps, M. 2002, Networks, communities and markets in SSA ; implications for firm growth and investment, Journal of African Economies 10, 109–142.

Fukuyama, F. 1995. Trust: The social virtues and creation of prosperity. London: Hamish Hamilton.

Glaeser, E. L., Laibson, D. I., Scheinkman, J. A. and C. L. Soutter. 2000. Measuring trust. Quarterly Journal of Economics 115:811−46.

Greif, A. 1989. Reputation and coalitions in medieval trade: Evidence on the Maghribi traders. Journal of Economic History 49:857−82.

Hafer, R.W. and Jones, G. 2012. IQ and Entrepreneurship: International Evidence , mimeo.

Harper, D. 2003. Foundations of entrepreneurship and economic development. Routledge, London.

Heckelman, J.C. and Stroup, M.D. 2000. Which economic freedoms contribute to growth? Kyklos, 53, 527-544.

Helliwell, J.F. 2003. How’s life? Combining individual and national variables to explain subjective well–being. Economic Modelling, 20, 331–360.

Helliwell, J.F. and Putnam, R. 1995. Economic growth and social capital in Italy. Eastern Economic Journal, 221, 295–307.

Henrekson, M. 2005. Entrepreneurship: a weak link in the welfare state? Industrial and Corporate change, 14, 437-467.

Holcombe, R.G. 1998. Entrepreneurship and economic growth. The Quarterly Journal of Austrian Economics 1(2): 45-62.

Kirzner, I. 1997. Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature 35(1): 60-85.

Knack, S. 2002. Social capital and the quality of government: evidence from the US states. American Journal of Political Science, 46, 772–785.

Knack, S. and Zak, P.J. 2002. Building trust: public policy, interpersonal trust, and economic development. Supreme Court Economic Review, 10, 91–107.

Knack, S., and Keefer, P. 1997. Does social capital have an economic pay-off? A cross-country investigation. Quarterly Journal of Economics, 112, 1251–1288.

La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R.W. 1997. Trust in large organizations. American Economic Review, 87, 333–338.

Lazear, E.P. 2004. Balanced skills and entrepreneurship. American Economic Review, 94, 208-211.

Lazear, E.P. 2005. Entrepreneurship. Journal of Labor Economics, 23, 649-680.

Lynn, R. and Meisenberg, G. 2010. National IQs calculated and validated for 108 nations. Intelligence, 38, 353-360.

Lynn, R. and Vanhanen, T. 2012. National IQs: A review of their educational, cognitive, economic, political, demographic, sociological, epidemiological, geographic and climatic correlates. Intelligence. doi:10.1016/j.intell.2011.11.004.

Nystrom, K. 2008. The institutions of economic freedom and entrepreneurship: evidence from panel data. Public Choice, 136, 262-282.

Potrafke, N. 2011. Intelligence and Corruption. University of Konstanz, Department of Economics Working Paper No.37. Accessed on October 25, 2012 at: http://www.wiwi.uni-konstanz.de/workingpaperseries

Putnam, R. 1993. Making democracy work. Princeton: Princeton University Press.

Rice, T.W. and Sumberg, A. 1997. Civic culture and democracy in the American states. Publius, 23, 99–114.

Rose, R. 2000. How much does social capital add to individual health? A survey study of Russians. Social Science and Medicine 51:1421−35.

Smith, A. 2008. The Determinants of Trust: An Experimental Approach, CEA 42nd Annual Meetings Friday, June 6 - Sunday, June 8, University of British Columbia, Vancouver.

Uslaner, E.M. 2002. The moral foundations of trust. Cambridge, UK: Cambridge University Press.

White, H., 1980. A heterskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48, 817–838.

Whiteley, P. 2000. Economic growth and social capital. Political Studies, 48, 443–466.

Wilson, W. J. 1987. The truly disadvantaged. Chicago: University of Chicago Press.

Woolcock, M. 1998. Social capital and economic development: Toward a theoretical synthesis and policy framework. Theory and Society 27:151−208.

Zak, P. and Knack, S. 2001. Trust and Growth. The Economic Journal, 111 (470), 295-321