The Organization of Firms Across Countries*

Abstract We argue that social capital as proxied by trust increases aggregate productivity by affecting the organization of firms. To do this we collect new data on the decentralization of investment, hiring, production, and sales decisions from corporate headquarters to local plant managers in almost 4,000 firms in the United States, Europe, and Asia. We find that firms headquartered in high-trust regions are significantly more likely to decentralize. To help identify causal effects, we look within multinational firms and show that higher levels of bilateral trust between the multinational’s country of origin and subsidiary’s country of location increases decentralization, even after instrumenting trust using…

• EM
  Ewing Marion Kauffman Foundation
• SR
  Sveriges Riksbanken
• DB
  Deutsche Bundesbank
• BD
  Banco de Portugal
• EA
  Economic and Social Research Council

  Award: ES/H02123X/1