Hostname: page-component-8448b6f56d-m8qmq Total loading time: 0 Render date: 2024-04-18T19:06:32.424Z Has data issue: false hasContentIssue false
  • English
  • Français

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
Get access Rights & Permissions [Opens in a new window]

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 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acemoglu, D., Johnson, S., Querubín, P. and Robinson, J. A. (2008), ‘When Does Policy Reform Work? The Case of Central Bank Independence’, Brookings Papers on Economic Activity, 1 (Spring): 351–418.Google Scholar
Alesina, A. and Drazen, A. (1991), ‘Why Are Stabilizations Delayed?’, American Economic Review, 81 (5): 1170–1188.Google Scholar
Alesina, A. and Giuliano, P. (2013), ‘Culture and Institutions’, NBER Working Paper 19750, Cambridge, MA: National Bureau of Economic Research.Google Scholar
Alesina, A., Ardagna, S. and Trebbi, F. (2006), ‘Who Adjusts and When? The Political Economy of Reforms’, IMF Staff Papers, 53: 1–29.Google Scholar
Algan, Y. and Cahuc, P. (2013), ‘Trust, Growth, and Well-Being: New Evidence and Policy Implications’, in Aghion, P. and Durlauf, S. N. (eds.), Handbook of Economic Growth, Vol. 2A, Amsterdam, Netherlands: Elsevier, pp. 49–120.Google Scholar
Arnone, M., Laurens, B., Segalotto, J.-F. and Sommer, M. (2009), ‘Central Bank Autonomy: Lessons from Global Trends’, IMF Staff Papers, 56: 263–296.Google Scholar
Berggren, N., Daunfeldt, S.-O. and Hellström, J. (2014), ‘Social Trust and Central-Bank Independence’, European Journal of Political Economy, 34 (June): 425–439.Google Scholar
Bjørnskov, C. (2007), ‘Determinants of Generalized Trust: A Cross-Country Comparison’, Public Choice, 130 (1–2): 1–21.Google Scholar
Bjørnskov, C. and Tinggaard Svendsen, G. (2013), ‘Does Social Trust Determine the Size of the Welfare State? Evidence Using Historical Identification’, Public Choice, 157 (1–2): 269–286.Google Scholar
Boix, C. and Posner, D. N. (1998), ‘Social Capital: Explaining Its Origin and Effects on Government Performance’, British Journal of Political Science, 28 (4): 686–693.Google Scholar
Brumm, H. J. (2006), ‘The Effect of Central Bank Independence on Inflation in Developing Countries’, Economics Letters, 90 (2): 189–193.Google Scholar
Cameron, A. C. and Trivedi, P. K. (2005), Microeconometrics: Methods and Applications, Cambridge, UK: Cambridge University Press.Google Scholar
Campos, N. F., Hsiao, C. and Nugent, J. B. (2010), ‘Crisis, What Crisis? New Evidence on the Relative Roles of Political and Economic Crises in Begetting Reforms’, Journal of Development Economics, 46 (10): 1670–1691.Google Scholar
Cheibub, J. A., Gandhi, J. and Vreeland, J. R. (2010), ‘Democracy and Dictatorship Revisited’, Public Choice, 143 (1–2): 67–101.Google Scholar
Crowe, C. and Meade, E. E. (2007), ‘The Evolution of Central Bank Governance Around the World’, Journal of Economic Perspectives, 21 (4): 69–90.Google Scholar
Cukierman, A. (2008), ‘Central Bank Independence and Monetary Policymaking Institutions – Past, Present and Future’, European Journal of Political Economy, 24 (4): 722–736.Google Scholar
Cukierman, A., Webb, S. B. and Neyapti, B. (1992), ‘Measuring the Independence of Central Banks and Its Effects on Policy Outcomes’, World Bank Economic Review, 6 (3): 353–398.Google Scholar
Daunfeldt, S.-O., Hellström, J. and Landström, M. (2013), ‘Why Do Politicians Implement Central Bank Independence Reforms?’, Atlantic Economic Journal, 41 (4): 427–438.Google Scholar
De Jong, E. (2002), ‘Why Are Price Stability and Statutory Independence of Central Banks Negatively Correlated? The Role of Culture’, European Journal of Political Economy, 18 (4): 675–694.Google Scholar
Drazen, A. and Grilli, V. (1993), ‘The Benefit of Crises for Economic Reforms’, American Economic Review, 83 (3): 598–607.Google Scholar
Drazen, A. and Easterly, W. (2001), ‘Do Crises Induce Reform? Simple Empirical Tests of Conventional Wisdom’, Economics and Politics, 13 (2): 129–157.Google Scholar
Dreher, A., Sturm, J.-E. and de Haan, J. (2008), ‘Does High Inflation Cause Central Bankers to Lose Their Job? Evidence Based on a New Data Set’, European Journal of Political Economy, 24 (4): 778–787.Google Scholar
Dreher, A., Sturm, J.-E. and de Haan, J. (2010), ‘When is a Central Bank Governor Replaced? Evidence Based on a New Data Set’, Journal of Macroeconomics, 32 (3): 766–781.Google Scholar
Fehr, E. (2009), ‘On the Economics and Biology of Trust’, Journal of the European Economic Association, 7 (2–3): 235–266.Google Scholar
Fernandez, R. and Rodrik, D. (1991), ‘Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty’, American Economic Review, 81 (5): 1146–1155.Google Scholar
Funke, N. (1993), ‘Timing and Sequencing of Reforms: Competing Views and the Role of Credibility’, Kyklos, 46 (3): 337–362.Google Scholar
Giuliano, P., Mishra, P. and Spilimbergo, A. (2013), ‘Democracy and Reforms: Evidence from a New Dataset’, American Economic Journal: Macroeconomics, 5 (4): 179–204.Google Scholar
Graham, J. W., Cumsille, P. E. and Elek-Fisk, E. (2003), ‘Methods for Handling Missing Data’, in Schinka, J. A. and Velicer, W. F. (eds.), Handbook of Psychology, Vol. 2, Research Methods in Psychology, New York, NY: John Wiley, pp. 109–141.Google Scholar
Hayo, B. (1998), ‘Inflation Culture, Central Bank Independence and Price Stability’, European Journal of Political Economy, 14 (2): 241–263.Google Scholar
Heinemann, F. and Tanz, B. (2008), ‘The Impact of Trust on Reforms’, Journal of Economic Policy Reform, 11 (3): 173–185.Google Scholar
ICRG (2008), International Country Risk Guide, Syracuse, NY: PRS Group.Google Scholar
ILO (2011), ‘LABORSTA Database’, http://laborsta.ilo.org (accessed 12 April 2013).Google Scholar
IMF (2011), ‘International Financial Statistics Database’, http://elibrary-data.imf.org (accessed 10 March 2013).Google Scholar
Klomp, J. and de Haan, J. (2010), ‘Inflation and Central Bank Independence: A Meta-Regression Analysis’, Journal of Economic Surveys, 24 (4): 593–621.Google Scholar
Kydland, F. E. and Prescott, E. C. (1977), ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy, 85 (3): 473–490.Google Scholar
Leibrecht, M. and Pitlik, H. (2014), ‘Generalised Trust, Institutional and Political Constraints on the Executive and Deregulation of Markets’, Working Paper 481, WIFO, Vienna.Google Scholar
Lundell, K. and Karvonen, L. (2003), ‘A Comparative Data Set on Political Institutions’, Occasional Paper 28, Department of Political Science, Åbo Akademi, Åbo.Google Scholar
Marshall, M. G. and Marshall, D. R. (2010), ‘Coup d’État Events 1946–2010’, http://www.systemicpeace.org/inscr/CSPCoupsCodebook2010.pdf, (accessed 18 May 2013).Google Scholar
Maxfield, S. (1997), Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries, Princeton, NJ: Princeton University Press.Google Scholar
Pitlik, H. (2008), ‘The Impact of Growth Performance and Political Regime Type on Economic Policy Liberalization’, Kyklos, 61 (2): 258–278.Google Scholar
Pitlik, H. and Wirth, S. (2003), ‘Do Crises Promote the Extent of Economic Liberalization? An Empirical Test’, European Journal of Political Economy, 19 (3): 565–581.Google Scholar
Rogoff, K. (1985), ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics, 100 (4): 1169–1190.Google Scholar
Roháč, D. (2014), ‘Policy Credibility and the Political Economy of Reform: The Case of Egypt's Commodity Subsidies’, Journal of Institutional Economics, 10 (2): 311–335.Google Scholar
Rubin, D. B. (1987), Multiple Imputation for Nonresponse in Surveys, New York, NY: John Wiley.Google Scholar
Sturm, J.-E. and de Haan, J. (2001), ‘Inflation in Developing Countries: Does Central Bank Independence Matter?’, Ifo Studien, 47 (4): 389–403.Google Scholar
Uslaner, E. M. (2008), ‘Where You Stand Depends on Where Your Grandparents Sat: The Inheritability of Generalized Trust’, Public Opinion Quarterly, 72 (4): 725–740.Google Scholar
World Bank (2011), ‘World Development Indicators’, http://data.worldbank.org/indicator, (accessed 25 May 2013.Google Scholar