Scandinavian Working Papers in Economics

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

No 03-21: Social Capital, Corruption and Economic Growth: Eastern and Western Europe

Gert Tinggaard Svendsen ()
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Gert Tinggaard Svendsen: Department of Economics, Aarhus School of Business, Postal: ThPrismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: We hypothesize, that power centralisation in a political system leads to more corruption due to the monopoly power status of bureaucrats. Corruption again would then lead to a lower level of social capital, here measured as trust, and slow down economic growth even further. Indeed, when comparing the tables and weighted averages for corruption and trust, highly corrupt countries such as those in Eastern Europe, also tend have the lowest level of trust. In general, low levels of trust (measured as general trust and civic participation) are also related to smaller Gross Domestic Product per capita levels. A similar pattern is observed within Western Europe. In the European Union, ‘Northern EU’ member states generally hold less corruption, more trust and higher Gross Domestic Product per capita compared to ‘Southern EU’ member states. In perspective, the fate of Eastern Europe could then be a lesson for how to decentralise power and accumulate trust in the future thus establishing better economic policies and the general business climate for entrepreneurship.

Keywords: Social capital; trust; public policy; corruption; economic growth; Eastern Europe; Western Europe

JEL-codes: A12; C71; D23; D60; D70; Z13

31 pages, January 28, 2003

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