Trust in Transition: Cross-Country and Firm Evidence

Publication:
Trust in Transition: Cross-Country and Firm Evidence

Date

2008

ISSN

87566222

Published

2008

Author(s)

Raiser, Martin

Steves, Franklin

Teksoz, Utku

Abstract

Using data from a large survey of firms across 26 transition economies, this article assesses the extent of trust in business relationships by measuring the level of prepayment demanded by suppliers, which we interpret as a measure of (dis)trust. We investigate a range of potential determinants of trust and find that trust among businesses is higher where confidence in third party enforcement through the legal system is higher. We also find that different types of business networks have a differential impact on the degree of trust between enterprises: networks based around family and friends help to build trust among firms, whereas networks based around enterprise insiders and government agencies appear to undermine trust. Our conclusion, based on the use of a unique multicountry enterprise data set, is that enterprises' room for maneuver in overcoming opportunism and distrust is much more limited by countrywide systemic factors than previously believed.

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