Ratio Working Papers,
The Ratio Institute

Abstract: This paper investigates whether social cohesion makes economic reforms more likely. First, we investigate whether social cohesion is a coherent concept by using a principal-component factor (PCF) analysis covering 16 indicators used to measure social cohesion in the previous literature for 40 different countries. The results suggest that in fact social cohesion is a multidimensional concept, consisting of no less than five orthogonal components or distinct dimensions, which we label social divisions, modern values, traditional nationalism, institutional commitment, and fairness as merit. These dimensions are then examined in relationship with economic reform in a panel regression framework. Results show that most dimensions of social cohesion do not in fact influence reform capacity. However, views of fairness based on merit, in contrast to equality, and to some extent social divisions, are found to have a positive effect on economic reforms. The results go against the previous literature, challenging the prevailing view of social cohesion as being unambiguously beneficial to economic reform.

Keywords: social cohesion; welfare state; reform; economic freedom

JEL-codes: D02; O17; O43; P00; Z13

40 pages, August 19, 2013

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