Skip to main content

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, 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.

Corresponding author
Hide All
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): 351418.
Alesina A. and Drazen A. (1991), ‘Why Are Stabilizations Delayed?’, American Economic Review, 81 (5): 11701188.
Alesina A. and Giuliano P. (2013), ‘Culture and Institutions’, NBER Working Paper 19750, Cambridge, MA: National Bureau of Economic Research.
Alesina A., Ardagna S. and Trebbi F. (2006), ‘Who Adjusts and When? The Political Economy of Reforms’, IMF Staff Papers, 53: 129.
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. 49120.
Arnone M., Laurens B., Segalotto J.-F. and Sommer M. (2009), ‘Central Bank Autonomy: Lessons from Global Trends’, IMF Staff Papers, 56: 263296.
Berggren N., Daunfeldt S.-O. and Hellström J. (2014), ‘Social Trust and Central-Bank Independence’, European Journal of Political Economy, 34 (June): 425439.
Bjørnskov C. (2007), ‘Determinants of Generalized Trust: A Cross-Country Comparison’, Public Choice, 130 (1–2): 121.
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): 269286.
Boix C. and Posner D. N. (1998), ‘Social Capital: Explaining Its Origin and Effects on Government Performance’, British Journal of Political Science, 28 (4): 686693.
Brumm H. J. (2006), ‘The Effect of Central Bank Independence on Inflation in Developing Countries’, Economics Letters, 90 (2): 189193.
Cameron A. C. and Trivedi P. K. (2005), Microeconometrics: Methods and Applications, Cambridge, UK: Cambridge University Press.
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): 16701691.
Cheibub J. A., Gandhi J. and Vreeland J. R. (2010), ‘Democracy and Dictatorship Revisited’, Public Choice, 143 (1–2): 67101.
Crowe C. and Meade E. E. (2007), ‘The Evolution of Central Bank Governance Around the World’, Journal of Economic Perspectives, 21 (4): 6990.
Cukierman A. (2008), ‘Central Bank Independence and Monetary Policymaking Institutions – Past, Present and Future’, European Journal of Political Economy, 24 (4): 722736.
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): 353398.
Daunfeldt S.-O., Hellström J. and Landström M. (2013), ‘Why Do Politicians Implement Central Bank Independence Reforms?’, Atlantic Economic Journal, 41 (4): 427438.
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): 675694.
Drazen A. and Grilli V. (1993), ‘The Benefit of Crises for Economic Reforms’, American Economic Review, 83 (3): 598607.
Drazen A. and Easterly W. (2001), ‘Do Crises Induce Reform? Simple Empirical Tests of Conventional Wisdom’, Economics and Politics, 13 (2): 129157.
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): 778787.
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): 766781.
Fehr E. (2009), ‘On the Economics and Biology of Trust’, Journal of the European Economic Association, 7 (2–3): 235266.
Fernandez R. and Rodrik D. (1991), ‘Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty’, American Economic Review, 81 (5): 11461155.
Funke N. (1993), ‘Timing and Sequencing of Reforms: Competing Views and the Role of Credibility’, Kyklos, 46 (3): 337362.
Giuliano P., Mishra P. and Spilimbergo A. (2013), ‘Democracy and Reforms: Evidence from a New Dataset’, American Economic Journal: Macroeconomics, 5 (4): 179204.
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. 109141.
Hayo B. (1998), ‘Inflation Culture, Central Bank Independence and Price Stability’, European Journal of Political Economy, 14 (2): 241263.
Heinemann F. and Tanz B. (2008), ‘The Impact of Trust on Reforms’, Journal of Economic Policy Reform, 11 (3): 173185.
ICRG (2008), International Country Risk Guide, Syracuse, NY: PRS Group.
ILO (2011), ‘LABORSTA Database’, (accessed 12 April 2013).
IMF (2011), ‘International Financial Statistics Database’, (accessed 10 March 2013).
Klomp J. and de Haan J. (2010), ‘Inflation and Central Bank Independence: A Meta-Regression Analysis’, Journal of Economic Surveys, 24 (4): 593621.
Kydland F. E. and Prescott E. C. (1977), ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, Journal of Political Economy, 85 (3): 473490.
Leibrecht M. and Pitlik H. (2014), ‘Generalised Trust, Institutional and Political Constraints on the Executive and Deregulation of Markets’, Working Paper 481, WIFO, Vienna.
Lundell K. and Karvonen L. (2003), ‘A Comparative Data Set on Political Institutions’, Occasional Paper 28, Department of Political Science, Åbo Akademi, Åbo.
Marshall M. G. and Marshall D. R. (2010), ‘Coup d’État Events 1946–2010’,, (accessed 18 May 2013).
Maxfield S. (1997), Gatekeepers of Growth: The International Political Economy of Central Banking in Developing Countries, Princeton, NJ: Princeton University Press.
Pitlik H. (2008), ‘The Impact of Growth Performance and Political Regime Type on Economic Policy Liberalization’, Kyklos, 61 (2): 258278.
Pitlik H. and Wirth S. (2003), ‘Do Crises Promote the Extent of Economic Liberalization? An Empirical Test’, European Journal of Political Economy, 19 (3): 565581.
Rogoff K. (1985), ‘The Optimal Degree of Commitment to an Intermediate Monetary Target’, Quarterly Journal of Economics, 100 (4): 11691190.
Roháč D. (2014), ‘Policy Credibility and the Political Economy of Reform: The Case of Egypt's Commodity Subsidies’, Journal of Institutional Economics, 10 (2): 311335.
Rubin D. B. (1987), Multiple Imputation for Nonresponse in Surveys, New York, NY: John Wiley.
Sturm J.-E. and de Haan J. (2001), ‘Inflation in Developing Countries: Does Central Bank Independence Matter?’, Ifo Studien, 47 (4): 389403.
Uslaner E. M. (2008), ‘Where You Stand Depends on Where Your Grandparents Sat: The Inheritability of Generalized Trust’, Public Opinion Quarterly, 72 (4): 725740.
World Bank (2011), ‘World Development Indicators’,, (accessed 25 May 2013.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Institutional Economics
  • ISSN: 1744-1374
  • EISSN: 1744-1382
  • URL: /core/journals/journal-of-institutional-economics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Altmetric attention score

Full text views

Total number of HTML views: 4
Total number of PDF views: 58 *
Loading metrics...

Abstract views

Total abstract views: 300 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 22nd November 2017. This data will be updated every 24 hours.