Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 02-15: Why Does the Northern Light Shine So Brightly? Decentralisation, social capital and the economy

Christian Bjørnskov () and Gert Tinggaard Svendsen ()
Additional contact information
Christian Bjørnskov: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Gert Tinggaard Svendsen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: Based on institutional economics, the paper develops a new model pointing at two main reasons why Scandinavia is doing so well in economic terms, namely the level of decentralisation and social capital in its broad sense. The idea in the model is that a political system, which decentralises power, means less lobbyism because access to economically harmful rent seeking is more costly. Consequently, social capital and the trust in other people and the political leadership will increase. This model, suggesting one single social capital measure, is applied to countries in both Western and Eastern Europe. The social capital ranking results indeed show that Scandinavia (Denmark, Norway, Sweden and Finland) is among the seven top ranking countries together with Switzerland, the Netherlands and Iceland.

Keywords: Social capital; decentralisation; economy; Scandinavia; Switzerland; Netherlands; rent seeking; transaction costs; economic freedom; corruption

JEL-codes: D60; H11; P52; Z13

27 pages, October 1, 2002

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