Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: We hypothesize, that power centralisation in a political system leads to more corruption due to the

monopoly power status of bureaucrats. Corruption again would then lead to a lower level of social capital,

here measured as trust, and slow down economic growth even further. Indeed, when comparing the tables

and weighted averages for corruption and trust, highly corrupt countries such as those in Eastern Europe,

also tend have the lowest level of trust. In general, low levels of trust (measured as general trust and civic

participation) are also related to smaller Gross Domestic Product per capita levels. A similar pattern is

observed within Western Europe. In the European Union, ‘Northern EU’ member states generally hold less

corruption, more trust and higher Gross Domestic Product per capita compared to ‘Southern EU’ member

states. In perspective, the fate of Eastern Europe could then be a lesson for how to decentralise power and

accumulate trust in the future thus establishing better economic policies and the general business climate for

entrepreneurship.

Keywords: Social capital; trust; public policy; corruption; economic growth; Eastern Europe; Western Europe

JEL-codes: A12; C71; D23; D60; D70; Z13

31 pages, January 28, 2003

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