Entrepreneurial choices depend on trust : Some global evidence

Abstract

Interpersonal trust and people’s trust in institutions are important components of social capital, which has been shown to have not only innate social value but also diverse direct and indirect positive social and economic impacts. Using data for an economically and globally diverse group of countries, we examine empirically how changes in interpersonal trust and trust in institutions affect entrepreneurship over time. Our findings suggest that (1) enhancing either type of trust leads to more entrepreneurial activity and (2) an increase in interpersonal trust causes a structural change in the composition of the TEA-type entrepreneurship. Increased trust reduces the share of relatively lower value-added necessity-driven entrepreneurial activity and increases the share of higher value-added improvement-driven opportunity entrepreneurial activity (Schumpeterian entrepreneurship).