Trust in Transition: Cross-Country and Firm Evidence

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.

Growth aspirations and social capital: Young firms in a post-conflict environment

“…Moreover, the composition of individual networks affects the ability to obtain a variety of information and resources (Jack et al, 2010;Raiser et al, 2007;Watson, 2011;Zang, 2011). A central debate in the literature on network structure concerns whether strong or weak ties bring more benefits to individuals (Granovetter, 1973;Greve and Salaff, 2003;Krackhardt, 1992;Wang and Altinay, 2012).…”

Entrepreneurial Activity in Post-Socialist Countries: Methodology and Research Limitations

“…play a role, informal ones do as well. These were noted by Saul Estrin and Tomasz Mickiewicz who among other things analyzed various attitudes, perceptions [Chepurenko, 2008], and social norms including trust [Raiser et al, 2003;Welter et. al., 2005].…”

Institutional reforms and income distribution: Evidence from post-transition EU countries

“…As the most appropriate measure of reforms for our analysis, we use the European Bank for Reconstruction and Development (EBRD) transition indicators (for more about benefits and limitations of using the EBRD transition indicators see in Mickiewicz 2010). In order to rule out the potential problem multicollinearity between individual indicators (Table 1), we calculated a single variable entitled Reform as unweighted average of six EBRD indicators: (1) small-scale privatization; (2) large-scale privatization; (3) governance and enterprise restructuring; (4) price liberalization; (5) trade and foreign exchange system; (6) competition policy (see similar approach in Elisabetta Falcetti, Tatiana Lysenko, and Peter Sanfey 2006; Martin Raiser et al 2008;Milanović and Ersado 2012). The index calculated in this way shows the average intensity of institutional reforms.…”