Trust(ing) in Europe?: How Increased Social Capital Can Contribute to Economic Development

Elias Papaioannou

Jun 2013 · Wilfried Martens Centre for European Studies

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This report surveys recent works in political economy showing that trust and civic capital more generally matter for various aspects of economic well-being and presents new evidence from European countries showing that trust has deteriorated considerably in those European countries that have been affected the most by the ongoing economic downturn. We also discuss policy recommendations. The key message is that because trust and social capital matter crucially for economic and institutional development, countries must both monitor developments closely and pursue policies that cultivate civic social capital. Given strong inertia, changing people's beliefs and promoting civic engagement will not occur overnight. Targeted policies can increase civicness and promote social capital considerably. First, promoting education seems crucial as, a higher level of education cultivates social capital. Second, countries where primary and secondary education are based on lecturing and memorising, should alter the curriculum towards more group activities, team projects, and critical thinking based on a dialectic method. Third, policymakers should continue promoting the outward orientation of the economy and the removal of administrative barriers to entry that fuel corruption and impede competition.

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Elias Papaioannou is Associate Professor of Economics at the London Business School. He is also a research affiliate of the CEPR (Centre for Economic Policy Research) and NBER (National Bureau of Economic Research), the leading research institutes in Europe and the United States, respectively. He holds an LL.B. from the law school of the National and Kapodistrian University of Athens, a Masters in Public Policy and Administration (MPA), with a concentration in international economics from Columbia University, and a Ph.D. in economics from the London Business School. After the completion of his doctorate in 2005 he worked for two years at the Financial Research Division of the European Central Bank (ECB). From 2007 until 2012 he served as Assistant Professor of Economics at Dartmouth College (NH, USA), while during the 2010-2011 and 2011-2012 academic years he was a Visiting Assistant Professor at the Economics Department of Harvard University (MA, USA). His research interests cover the areas of international finance, political economy, applied econometrics, macro aspects of regulation, law and finance, and growth and development. He has published in many leading peer-refereed journals and in numerous edited book volumes. His research has been recognized with the 2005 Young Economist Award by the European Economic Association and the 2008 Austin Robinson memorial prize by the Royal Economic Association. Elias consults regularly for international organizations, major investment banks, hedge funds, and institutional investors on macroeconomic developments in the EU and Greece.