Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Happiness in CEE Countries

We investigate the extent to which bridging and bonding social capital as well as social trust and individuals’ earnings interdependently affect self-reported happiness. The study is based on cross-sectional World Values Survey 2000 data on individuals from eight Central and Eastern European countries (CEECs). We identify high risk of regressor endogeneity and omitted variables bias in happiness regressions, and eliminate them using instrumental variables and an appropriate set of controls. The endogeneity issue has been generally overlooked in earlier studies. Our study therefore provides novel implications for the general discussion on the causal relationships between the five considered variables. Our results are also discussed in the specific context of socio-economic convergence processes currently taking place in CEECs.

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