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Does social trust speed up reforms? The case of central-bank independence

Published online by Cambridge University Press:  20 July 2015

NICLAS BERGGREN ,
SVEN-OLOV DAUNFELDT  and
JÖRGEN HELLSTRÖM
NICLAS BERGGREN*
Affiliation:
Research Institute of Industrial Economics (IFN), Stockholm, Sweden, and Department of Institutional, Environmental and Experimental Economics (KIE), University of Economics in Prague, Czech Republic
SVEN-OLOV DAUNFELDT*
Affiliation:
HUI Research, Stockholm, Sweden, and Department of Economics, Dalarna University, Borlänge, Sweden
JÖRGEN HELLSTRÖM*
Affiliation:
Umeå School of Business and Economics, Umeå University, Umeå, Sweden
*
*Email: niclas.berggren@ifn.se
**Email: Sven-Olov.Daunfeldt@hui.se
***Email: jorgen.hellstrom@umu.se
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Abstract

Many countries have undertaken central-bank independence reforms, but the years of implementation differ. What explains such differences in timing? This is of interest more broadly, as it sheds light on factors that matter for the speed at which economic reforms come about. We study a rich set of potential determinants, both economic and political, but put special focus on a cultural factor, i.e. social trust. We find empirical support for an inverse u-shape: Countries with low and high social trust implemented their reforms earlier than countries with intermediate levels. We make use of two factors to explain this pattern: the need to undertake reform (which is more urgent in countries with low social trust) and the ability to undertake reform (which is greater in countries with high social trust). Overall, our findings imply that culture matters for institutional change.

Type
Research Article
Information
Journal of Institutional Economics , Volume 12 , Issue 2 , June 2016 , pp. 395 - 415
Copyright
Copyright © Millennium Economics Ltd 2015 

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