The effect of institutional constraints and business network on trust in government: An institutional perspective

Abstract

Determinants of trust in institutions have been investigated by scholars mostly at individual level by using different theoretical perspectives. However, the ways in which changes in institutional environment affect business trust in government have not received adequate attention from researchers. The current paper sets out to contribute to existing literature by examining closely the role of business enabling policies, institutional constraints, and business networks on institutional trust in the context of a transition country like Albania. The study adopts an institutional perspective and the analysis is administrated on a firm-level data collection. Stratified sample technique was applied in selecting the respondents. To test the proposed linkages an ordinal regression was performed on an original data-set comprising 210 small and medium-sized enterprises. The results revealed that business enabling policies positively influence trust in government, whereas institutional constraints such as courts and corruption, and tax and labor regulations–related constraints negatively affect it. Hence, the higher the institutional constraints, the lower the institutional trust. Moreover, being a member of a business association diminished trust in government. Nevertheless, an interesting finding was that old firms in business association were less skeptic toward government as compared to the other ones. This paper offers useful insights for scholars into the linkage between trust in governmental agencies and entrepreneurship in institutional transformation contexts, and it unquestionably adds to the knowledge on transition countries. © 2019, Bucharest University of Economic Studies Publishing House. All rights reserved.