Niclas Berggren

Free to Trust: Economic Freedom and Social Capital

We present new evidence on how generalized trust is formed. Unlike previous studies, we look at the explanatory power of economic institutions, we use newer data, we incorporate more countries, and we use instrumental variables in an attempt to handle the causality problem. A central result is that legal structure and security of property rights (area 2 of the Economic Freedom Index) increase trust. The idea is that a market economy, building on voluntary transactions and interactions with both friends and strangers within the predictability provided by the rule of law, entails both incentives and mechanisms for trust to emerge between people.

Economic Freedom and Equality: Friends or Foes?

How does economic freedom, mainly how property rights are designed and protected, relate to income equality? Whilst this is argued to be theoretically ambiguous, the empirical results reveal that there is a positive relationship between changes in economic freedom and equality: the more a country increased its economic freedom between 1975 and 1985, the higher the level of equality around 1985. Most important in this regard is trade liberalization and financial deregulation. Also, there are signs that the level of economic freedom in 1985 is negatively related to the level of equality around that year, plausibly because of less redistribution.

Does Economic Freedom Foster Tolerance

Tolerance has the potential to affect both economic growth and wellbeing. It is therefore important to discern its determinants. We add to the literature by investigating whether the degree to which economic institutions and policies are market-oriented is related to different measures of tolerance. Regression analysis of up to 65 countries reveals that economic freedom is positively related to tolerance towards homosexuals, especially in the longer run, while tolerance towards people of a different race and a willingness to teach kids tolerance are not strongly affected by how free markets are. Stable monetary policy and outcomes is the area of economic freedom most consistently associated with greater tolerance, but the quality of the legal system seems to matter as well. We furthermore find indications of a causal relationship and of social trust playing a role as a mechanism in the relationship between economic freedom and tolerance and as an important catalyst: the more trust in society, the more positive the effect of economic freedom on tolerance.

Rhetoric or reality? An economic analysis of the effects of religion in Sweden

The present paper begins by outlining a theoretical, rational- choice approach to understanding how religious beliefs and affiliations might influence the behavior of individuals. This influence arises from an expectation that the god in question punishes certain forms of action and from social reprimands of devotees. In particular, four specific types of behavior are investigated: the divorce, abortion, non-payment, and children- born-out-of-wedlock rates. It is demonstrated why it is to be expected that Christian religious involvement discourages all of these activities. Regression analysis is then used to test the theory in the case of Sweden in the year 1990, and the importance of religion is strongly confirmed for all four types of behavior.

The growth effects of institutional instability

We study the effects of institutional instability on growth. Using principal components analysis, we construct measures of institutional quality and instability from the political risk index of the International Country Risk Guide. A panel-data analysis of 132 countries during 1984–2004 reveals that institutional quality, especially with regard to the legal system and the protection of property rights, is positively linked to growth. As for institutional instability, we find evidence of a positive relationship in rich countries but a negative link in poor countries, suggesting that instability may reduce problems of institutional sclerosis in the former and that instability primarily entails an increase in transactions costs and uncertainty in the latter.

Time for behavioral political economy? An analysis of articles in behavioral economics

This study analyzes leading research in behavioral economics to see whether it contains advocacy of paternalism and whether it addresses the potential cognitive limitations and biases of the policymakers who are going to implement paternalist policies. The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers. This suggests that behavioral political economy, in which the analytical tools of behavioral economics are applied to political decision-makers as well, would offer a useful extension of the research program.

Does Religiosity Promote Property Rights and the Rule of Law

Social and cultural determinants of economic institutions and outcomes have come to the forefront of economic research. We introduce religiosity, measured as the share for which religion is important in daily life, to explain institutional quality in the form of property rights and the rule of law. Previous studies have only measured the impact of membership shares of different religions, with mixed results. We find, in a cross-country regression analysis comprising up to 112 countries, that religiosity is negatively related to our institutional outcome variables. This only holds in democracies (not autocracies), which suggests that religiosity affects the way institutions work through the political process. Individual religions are not related to our measure of institutional quality.

Why constitutions matter

As countries in the twentieth and twenty-fi rst centuries change from colonialist to independent rule, or from a socialist to a democratic society, the need for a written constitution becomes apparent. Countries in the former Soviet Union, Africa, or nations once part of the British Empire face social, economic, and humanitarian problems as they experiment with democratic rule. Such issues as clearly defi ning where sovereignty lies, how much power is given to the people, and what rights are possessed by a nations citizenry are new to these countries. While a constitution, being a man-made document, is subject to interpretation and does not always delineate in a lucid framework its parameters for future generations, it is clear that constitutions do matter. This volume, compiled under the direction of the City University of Stockholm, is an important study on the signifi cance of constitutions and constitutional law in a democratic society. A number of scholars in law, political science, and economics have contributed to this volume. They include: James Buchanan, Aleksander Peczenik, Mats Lundstrom, Joakim Nergelius, Sverker Hard, Niclas Berggren, Peter Kurrild-Klitgaard, Wolfgang Kasper, and Erik Moberg. All add to the understanding of the intertwining roles of politics and the social sciences in a modern democratic state. They explore why a constitution is essential; the relationship between a constitution and a rational political system; the democratic principle of majority rule; why constitutional constraints are needed in a democratic state; recent constitutional reforms in the United Kingdom; the electoral system and its centrality in a democracy; evolution in constitutional change; competition within a federal structure; and the connection between politics and economics. Why Constitutions Matter is a fascinating and timely study of constitutionalism, and will be of interest to students of politics, law, economics, and sociology.

Constitutionalism, Division of Power and Transaction Costs

According to many democracytheorists, there is an unavoidabletrade-off between constitutionalism and theneed for political action. This papercriticizes that belief. Rather, it arguesthat a division of power, while sometimesentailing high political transaction costs,can nevertheless be beneficial andthat it is not necessarily the case that adivision of power does entail hightransaction costs. The analysis expands theframework of Buchanan and Tullock (1962).Constitutionalism is thus defended againstone of its main perceived deficiencies: itsbringing about gridlock. This does notalways happen, and when it does, it isoften a good thing.

Does social trust speed up reforms? The case of central-bank independence

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, 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).