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The authors argue that social capital as proxies by regional trust and the Rule of Law can improve aggregate productivity through facilitating greater firm decentralization. They collect original data on the decentralization of investment, hiring, production and sales decisions from Corporate Head Quarters to local plant managers in almost 4,000 firms in the US, Europe and Asia. They find Anglo-Saxon and Northern European firms are much more decentralized than those from Southern Europe and Asia. Trust and the Rule of Law appear to facilitate delegation by improving co-operation, even when they examine "Bilateral trust" between the country of origin and location for affiliates of multinational firms.
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