is social capital green cultural features and environmental performance in the european union this paper analyses the relationship between social capital and environmental performance in the european union in a first stage environmental performance is measured by an index of eco efficiency at the country level computed using data envelopment analysis techniques and data for the year 2013 in a second stage the influence of social capital and other relevant control variables on eco efficiency is assessed by means of truncated regressions and bootstrapping as proposed by simar and wilson j econom 136 1 31 64 2007 for several model specifications tests fail to reject the hypothesis of no effect of social capital on environmental performance and the main driver of environmental performance is found to be the level of economic development measured by gdp per capita furthermore this result is robust to different definitions of social capital and sample periods

joseph schumpeter lecture ideology i develop a model of ideologies as collectively sustained yet individually rational distortions in beliefs concerning the proper scope of governments versus markets in processing and interpreting signals of the efficacy of public and market provision of education health insurance pensions etc individuals optimally trade off the value of remaining hopeful about their future prospects or their children s versus the costs of misinformed decisions because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial endogenous social cognitions emerge thus an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them embracing a statist ideology and voting for an excessively large government conversely an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez faire ideology and blind faith in the invisible hand with public sector capital this interplay of beliefs and institutions leads to history dependent dynamics the model also explains why societies find it desirable to set up constitutional protections for dissenting views even when ex post everyone would prefer to ignore unwelcome news jel h11 d72 d83 p16 z1

foreign corporations and the culture of transparency evidence from russian administrative data abstract firms from developed countries carry a culture of transparency in business transactions that is opposite to the culture of hiding and insider dealing in developing and transition economies we employ russian administrative data on reported earnings and market values of cars to measure wage misreporting for individual employees of domestic firms in moscow we show that closer ties to multinationals lead to improved transparency of wage reporting in private russian companies employees located closest to movers from multinationals in the job quality space experience the largest gains in transparency we find a robust correlation between wage misreporting and accounting fraud

alfred marshall lecture social capital as good culture to explain the extremely long term persistence more than 500 years of positive historical experiences of cooperation putnam 1993 we model the intergenerational transmission of priors about the trustworthiness of others we show that this transmission tends to be biased toward excessively conservative priors as a result societies can be trapped in a low trust equilibrium in this context a temporary shock to the return to trusting can have a permanent effect on the level of trust we validate the model by testing its predictions on the world values survey data and the german socio economic panel we also present some anecdotal evidence that these priors are reflected in novels that originate in different parts of the country jel 04 016 043 p16

trust and stock price crash risk evidence from china abstract this paper examines the impact of social trust on stock price crash risk social trust measures the level of mutual trust among the members of a society using a large sample of chinese listed firms for the 2001 2015 period we find that firms headquartered in regions of high social trust tend to have smaller crash risks this result is robust to a battery of sensitivity tests and is more prominent for state owned enterprises soes for firms with weak monitoring and for firms with higher risk taking moreover we observe that firms in regions of high social trust are associated with higher accounting conservatism and fewer financial restatements our study suggests that social trust is an important variable that is omitted in the literature investigating the predictors of stock price crashes

why do parents socialize their children to behave pro socially an information based theory we present a model of intergenerational transmission of pro social values in which parents have information about relevant characteristics of society that is not directly available to their children dierently from existing models of cultural transmission of values such as bisin and verdier 2001 and tabellini 2008 we assume that parents are exclusively concerned with their children s material welfare if parents coordinate their educational choices a child would look at her system of values to predict the values of her contemporaries with whom she may interact a parent may thus choose to instil prosocial values into his child in order to signal to her that others can generally be trusted this implies that parents may optimally decide to endow their children with values that stand in contrast with maximization of material welfare even if their children s material welfare is all they care about jel codes d64 d82 h41 z13

the long term effect of demographic shocks on the evolution of gender roles evidence from the transatlantic slave trade can demographic shocks affect the long run evolution of female labor force participation and gender norms this paper traces current variation in women s participation in the labor force within sub saharan africa to the emergence of a female biased sex ratio during the centuries of the transatlantic slave trade this historical shock affected the division of labor along gender lines in the remaining african population as women substituted for the missing men by taking up areas of work that were traditionally male tasks by exploiting variation in the degree to which different ethnic groups were affected by the transatlantic slave trade i show that women whose ancestors were more exposed to this shock are today more likely to be in the labor force have lower levels of fertility and are more likely to participate in household decisions the marriage market and the cultural transmission of internal norms across generations represent important mechanisms explaining this long run persistence

a tale of an unwanted outcome transfers and local endowments of trust and cooperation abstract transfers can do good however they can also result in massive failures this paper presents a model that highlights the ambiguous nature of the impact of transfers on local endowments of social capital it then describes an empirical investigation that illustrates that the receipt of eu structural funds causes a deterioration of the endowments of trust and cooperation in the subsidized regions

the productivity of trust this paper tests whether social trust affects total factor productivity tfp using both development and growth accounting we find strong evidence of a causal positive effect of social trust on the level and growth of tfp we moreover observe that the effect of social trust on tfp runs through economic judicial institutions but not through political institutions those findings resist a series of robustness checks

inequality and group participation theory and evidence from rural tanzania abstract this paper investigates the determinants of group membership and in particular the effect of income inequality on individual incentives to join economic groups drawing on a simple model we show that an increase in inequality has an ambiguous effect and that the type of access rule open versus restricted access is key in determining what income categories are represented in the group furthermore the shape of the income distribution can be crucial to determine whether increased inequality leads to more or less group participation using survey data from rural tanzania we find that inequality at the village level has a negative impact on the likelihood that the respondents are members of any group this effect is particularly significant for relatively wealthier people both when relative wealth is objectively measured and when it is subjectively defined however when we disaggregate groups by type of access rule we find that inequality decreases participation in open access groups when there are wide disparities at the bottom of the distribution while it increases participation in restricted access groups when the disparities are around the middle and top part of the distribution finally we assess the impact of inequality on various dimensions of group functioning

who trusts others community and individual determinants of social capital in a low income country this study presents new evidence on individual and community specific determinants of social trust using data from 96 villages in bangladesh we find perceived institutional trust to be positively correlated with stated inter personal trust at the same time there is significant social distance among various faith groups in our data both hindus and muslims trust their coreligionists more than they trust those from other religions moreover hindus trust christians buddhists and ngo workers more than muslims and are not distrustful of the wider society trust towards non muslims is negatively correlated with islamic school attendance among muslim respondents while religiosity tends not to play any role compared to religion the effects of institutional trust and local economic development are modest these findings are robust to control for a range of individual and community level correlates and enumerator fixed effects

people s opium religion and economic attitudes since max weber there has been an active debate on the impact of religion on people s economic attitudes much of the existing evidence however is based on cross country studies in which this impact is confounded by differences in other institutional factors we use the worldvalues surveys to id entify the relationship between intensity of religious beliefs and economic attitudes controlling for country fixed effects we study several economic attitudes towardcooperation the government working women legal rules thriftiness andthe market economy we also distinguish across religious denominations differentiating on whether a religion is dominant in a country we find that on average religious beliefs are associated with good economic attitudes where good is defined as conducive to higher per capita income andgrowth yet religious people tendto be more racist andless favorable with respect to working women these effects differ across religious denominations overall we find that christian religions are more positively associatedwith attitudes conducive to economic growth r 2003 elsevier science b v all rights reserved jel classification a1 e0 n4 z1

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

tourism and development a recent phenomenon built on old institutional roots is tourism an opportunity for lagging countries in the elusive quest for growth easterly 2002 recent empirical evidence suggests that the answer is a cautious yes aggregate cross country data show that tourism specialization is likely to be associated with higher per capita gdp growth rates than those observed in industrialized countries however this evidence ignores the importance of institutional quality and results are likely to be biased by omitted variable problems in this paper we frame our starting question within the general debate about the importance of good bad institutions as fundamental determinants of economic growth acemoglu et al 2001 and ask whether previous positive results of tourism on growth are in fact driven by the presence of growth enhancing institutions our empirical analysis exploits newly available datasets and controls the robustness of previous results on growth and tourism in the presence of several institutional quality variables by means of descriptive statistics and some simple cross country regressions we confirm that the quality of institutions is important for growth yet our results strongly suggest that the weight of tourism in an economy is an independent and robust predictor of higher than average growth

explaining the performance of contract farming in ghana the role of self efficacy and social capital abstract self efficacy is the belief of an individual to have the ability to be successful in a given domain social capital is the economic value of a person s relationships in the context of this study self efficacy is the belief of a farmer to be able to improve her income with contract farming which increases her actual ability social capital increases the ability of the farmers through social support we surveyed 400 smallholder pineapple farmers and find that both self efficacy and social capital are decisive for their successful integration into contract farming to identify causal effects we use two instruments which are also of interest on their own the historical presence of 1 cocoa cooperatives and 2 christian missionary schools during ghana s colonial period the british established cocoa cooperatives which differed in their performance as a function of biogeographic factors and thus persistently shaped the self efficacy of the farmers roughly at the same time christian missionaries established missionary schools which impacted the traditional societies so that social capital decreased the finding that self efficacy and social capital are still shaped by historic variables could indicate that these variables are only slowly changing or that they only do so in the absence of policy intervention the latter raises the possibility that effective policies could benefit from strong reinforcing feedbacks once self efficacy and social capital improve

ethics welfare and capital markets abstract we examine implications of a society s cultural emphasis on moral sentiments entrepreneurs and investors interact in a game that entails both adverse selection and moral hazard entrepreneurs may attempt to breach their contracts and expropriate investors an agent is born into a particular culture but chooses whether to develop a moral conscience and thereby subject himself to moral sentiments in equilibrium societies that place less emphasis on guilt exhibit a lower risk of expropriation in contracts a greater net price of capital a larger size of firms increased capital inflows and greater social welfare the results of a greater emphasis on pride are in the same direction

from tradition to modernity economic growth in a small world this paper introduces the small world model watts and strogatz nature 1998 into the theory of economic growth and investigates how increasing economic inte gration aects rm size and eciency norm enforcement and aggregate economic perfor mance when economic integration is low and local connectivity is high informal norms control entrepreneurial behavior and more integration mainly improves search for ecient investment opportunities at a higher level of economic integration neighborhood enforce ment deteriorates and formal institutions are needed to keep entrepreneurs in check a gradual take o to perpetual growth is explained by a feedback eect

knowledge innovation and productivity gains across european regions capello r and lenzi c knowledge innovation and productivity gains across european regions regional studies this paper studies the relationship between knowledge innovation and productivity in european regions looking for the sources of spatial heterogeneity across regions in the type of knowledge needed for innovation and in the propensity to innovate which mostly depend upon specific and systemic context conditions the conceptual framework of analysis is based on the strong belief that different modes of innovation characterize regions according to the presence absence of some context conditions that allow for the creation and or adoption of knowledge and innovation given the differences in knowledge and innovation intensity that characterize each mode pattern of innovation expectations are formulated on the achievement of productivity gains in regions characterized by different innovation patterns empirical evidence supports the conceptual expectations and shows that in regional innovation

the critical trade off identity assignment and box office success in the feature film industry researchers have begun to study markets that are structured in terms of an opposition between market identities in a manner akin to the role pairs analyzed in structural role theory in this paper we analyze the feature film market which came to have such a role structure by the mid 1990s by exploiting the contingency that pertains to the identity of newly released films and the intermediary function played by critics we assess the tendency for offerings to be assigned one or the other of the available market identitiesc independent or major an analysis of the box office success of 396 feature films released in 1997 shows that a film attracted a larger audience when critics who specialized in major releases reviewed the film and implicitly certified it as fit for the mass market such classification was particularly crucial for breaking out of the initial constraints set by theatrical exhibitors however while attaining a major identity was necessary for success in the mass market it was a handicap in penetrating the art house this trade off illustrates how market structures restrict identity in a manner akin that by which role structures place constraints on the identities available to individuals copyright 2003 oxford university press

optimal repeated purchases when sellers are learning about costs abstract a buyer repeatedly purchases some good suppliers privately learn their cost only upon producing at least once efficiency would imply sampling sellers until one is found with cost lower than a increasing with time reservation value then the good would be permanently purchased from the seller with lowest cost a sequence of second price auctions with participation premia and entry fees is shown to be both efficient and optimal for the buyer an alternative calls for price offers by informed sellers with compensations that increase in the offer in both cases the buyer subsidizes competition through participation premia or compensations journal of economic literature classification numbers d44 d83 l14

the role of social capital in financial development to identify the effect of social capital on financial development we exploit social capital differences within italy in high social capital areas households are more likely to use checks invest less in cash and more in stock have higher access to institutional credit and make less use of informal credit the effect of social capital is stronger where legal enforcement is weaker and among less educated people these results are not driven by omitted environmental variables since we show that the behavior of movers is still affected by the level of social capital of the province where they were born

the intergenerational transmission of risk and trust attitudes recent theories endogenize the attitude endowments of individuals assuming that they are shaped by the attitudes of parents and other role models this paper tests empirically for the relevance of three aspects of the attitude transmission process highlighted in this theoretical literature 1 transmission of attitudes from parents to children 2 an impact of prevailing attitudes in the local environment on child attitudes and 3 positive assortative mating of parents which enhances the ability of a parent to pass on his or her attitudes to the child we focus on two fundamentally important attitudes willingness to take risks and willingness to trust others we find empirical support for all three aspects providing an empirical underpinning for the literature an investigation of underlying mechanisms shows that socialization is important in the transmission process various parental characteristics and aspects of family structure are found to strengthen the socialization process with implications for modeling the socialization production function and for policies focused on affecting children s non cognitive skills the paper also provides evidence that the transmission of risk and trust attitudes affects a wide variety of child outcomes implying a potentially large total effect on children s economic situation

the empire is dead long live the empire long run persistence of trust and corruption in the bureaucracy we hypothesise that the habsburg empire with its well respected administration increased citizens trust in local public services in several eastern european countries communities on both sides of the long gone habsburg border have shared common formal institutions for a century now we use a border specification and a two dimensional geographic regression discontinuity design to identify from individuals living within a restricted band around the former border we find that historical habsburg affiliation increases current trust and reduces corruption in courts and police falsification tests of spuriously moved borders geographic and pre existing differences and interpersonal trust corroborate a genuine habsburg effect

local market size social capital and outsourcing evidence from emilia romagna based on a unique dataset concerning small firms operating in the machinery and equipment industry in emilia romagna italy we estimate the separate effects of social capital and local market size on the probability to either fully or partially outsource parts of the production process we are able to distinguish 29 different phases of the production cycle from design to early processing to post production our estimates show that 1 social capital influences the full outsourcing of core assembly and post assembly activities while local market size affects the full outsourcing of early processing activities 2 neither social capital nor local market size have a statistically significant effect on the probability of partially outsourcing any step of the production process robustness tests confirm our results vis a vis the endogeneity of the local market size and social capital and the potential modifiable area unit problem relating to local market size

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

the right amount of trust we investigate the relationship between individual trust and individual economic performance we find that individual income is hump shaped in a measure of intensity of trust beliefs heterogeneity of trust beliefs in the population coupled with the tendency of individuals to extrapolate beliefs about others from their own levels of trustworthiness could generate this non monotonic relationship highly trustworthy individuals tend to form overly optimistic beliefs to assume too much social risk and to be cheated more often ultimately performing less well than those with a belief close to the mean trustworthiness of the population on the other hand less trustworthy individuals form overly pessimistic beliefs and avoid being cheated but give up profitable opportunities therefore underperforming the cost of either too much or too little trust is comparable to the income lost by foregoing college our findings in large scale survey data are supported and extended with experimental findings we show that in the trust game own trustworthiness and beliefs about others trustworthiness are strongly correlated and persistent and that patterns in earnings lost due to incorrect beliefs are comparable to those in the survey data

cultural differences and institutional integration if citizens of different countries belonging to an economic union adhere to different and deeply rooted cultural norms when these countries interact they may find it impossible to agree on efficient policies especially in hard times political leaders are bound to follow policies that do not violate their country s cultural norms this paper provides a simple positive theory and a compelling case study of the euro area crisis to highlight the importance of cultural clashes when economies integrate we also provide a normative argument about the desirability of institutional integration a political union with a common enforcement agency is the more beneficial the greater is cultural diversity in an economic union

law enforcement and political participation italy 1861 65 abstract does tougher law enforcement positively affect political participation this paper addresses this question which hinges upon the causal impact of formal institutions on informal ones by using a historical event from 19th century italy this event was the pica law which was introduced in 1863 to fight a surge of criminal violence in southern italy and to ensure a safer environment for wealthy people the only ones allowed to vote at that time our main finding obtained using a spatial regression discontinuity technique in a diff in diffs framework is that voter turnout greatly increased in those areas where the pica law was applied compared with bordering and otherwise similar areas this result is confirmed by a number of robustness checks and placebo exercises and turns out to be persistent over time

the long term costs of government surveillance insights from stasi spying in east germany we investigate the long run effects of government surveillance on civic capital and economic performance studying the case of the stasi in east germany exploiting regional variation in the number of spies and administrative features of the system we combine a border discontinuity design with an instrumental variables strategy to estimate the long term post reunification effect of government surveillance we find that a higher spying density led to persistently lower levels of interpersonal and institutional trust in post reunification germany we also find substantial and long lasting economic effects of stasi surveillance resulting in lower income higher exposure to unemployment and lower self employment

the evolution of value systems a review essay on ian morris s foragers farmers and fossil fuels foragers farmers and fossil fuels how human values evolve is a large scale history of the world through the different modes of production humanity has adopted over time and their implications in terms of moral values morris argues that the predominant value systems of human societies are cultural adaptations to the organizational structures of the societies themselves their institutions and ultimately to their modes of production in particular the book contains a careful analysis of how the hunting gathering mode of production induces egalitarian values and relatively favorable attitudes toward violent resolution of conflicts while farming induces hierarchical values and less favorable attitudes toward violence and in turn the fossil fuel that is industrial mode of production induces egalitarian values and nonviolent attitudes the narrative in the book is rich diverse and ultimately entertaining morris s analysis is very knowledgeable and informative arguments and evidence are rooted in history anthropology archeology and social sciences in general nonetheless the analysis falls short of being convincing about the causal nature of the existing relationship between modes of production and moral value systems

family values and the regulation of labor flexible labor markets requires geographically mobile workers to be e cient otherwise rms can take advantage of the immobility of workers and extract monopsony rents in cultures with strong family ties moving away from home is costly thus individuals with strong family ties rationally choose regulated labor markets to avoid moving and limiting the monopsony power of rms even though regulation generates lower employment and income empirically we do nd that individuals who inherit stronger family ties are less mobile have lower wages are less often employed and support more stringent labor market regulations there are also positive cross country correlations between the strength of family ties and labor market rigidities finally we nd positive correlations between labor market rigidities at the beginning of the twenty rst century and family values prevailing before world war ii which suggests that labor market regulations have deep cultural roots

social capital and the cost of equity abstract we find that a firm s cost of equity is inversely related to the level of social capital in the state where the firm is headquartered further the cost of equity declines when firms move their headquarters from a low social capital state to a state with higher social capital the negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product market competition and is not significant for firms with good firm specific reputations we interpret these findings as indicating that social capital serves as a societal monitoring mechanism and can be value enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring

segregation and the quality of government in a cross section of countries we provide a new compilation of data on ethnic linguistic and religious composition at the subnational level for a large number of countries using these data we measure segregation of groups within the country to overcome the endogeneity problem that arises because of mobility and endogenous in ternal borders we construct an instrument for segregation we find that more ethnically and lin guistically segregated countries i e those where groups live more spatially separately have a lower quality of government there is no relationship between religious segregation and governance trust is an important channel of influence it is lower in more segregated countries jel hi 1 h77 j15 017 z12 z13 racial and religious conflicts are often associated with poor politicoeconomic performance especially in developing countries economists have recently turned their attention to ethnolinguistic fractionalization as an explanation of differences in the pace of development starting with an influential paper by william easterly and ross levine 1997 since then many others have shown that fractionalization is negatively correlated with a host of policy outcomes and the quality of government 1 however many ethnically diverse countries the united states for instance are quite successful what makes different countries more or less capable of handling

risk aversion wealth and background risk we use household survey data to construct a direct measure of absolute risk aversion based on the maximum price a consumer is willing to pay for a risky security we relate this measure to consumer s endowments and attributes and to measures of background risk and liquidity constraints we find that risk aversion is a decreasing function of the endowment thus rejecting cara preferences we estimate the elasticity of risk aversion to consumption at about 0 7 below the unitary value predicted by crra utility we also find that households attributes are of little help in predicting their degree of risk aversion which is characterized by massive unexplained heterogeneity we show that the consumer s environment affects risk aversion individuals who are more likely to face income uncertainty or to become liquidity constrained exhibit a higher degree of absolute risk aversion consistent with recent theories of attitudes toward risk in the presence of uninsurable risks jel d1 d8

doubts and dogmatism in conflict behavior we consider a conflict under incomplete information where two opponents fight to impose their preferred policy before the conflict one opponent the agent trusts the information received by his principal under some conditions the principal induces hawkish attitudes in the agent the agent never doubts the optimality of his preferred policy conflicts are violent and bad decisions are sometimes made under other conditions the agent believes that his opponent may be right even when all evidence indicates that the policy preferred by the opponent is certainly suboptimal in this case the agent adopts dovish attitudes and conflicts are less violent

still different after all these years solidarity behavior in east and west germany abstract using data from laboratory experiments we find that east germans show consistently less solidarity than west germans there has been no convergence in the 20 years after the reunification while it has recently been estimated that political values converge 20 to 40 years after the reunification alesina and fuchs schundeln 2007 we conclude from our findings that social behavior changes more slowly than political values we hypothesize that this is due to complementarities involved in individual social behavior and the necessity to coordinate on social norms on the society level

is trust the missing root of institutions education and development we report evidence that trust is the missing root relating education institutions and economic development we observe that more trust both increases education and improves legal and bureaucratic institutions which in turn spurs economic development we substantiate this intuition with a series of regressions that provide evidence that trust determines both education and the quality of institutions and that education and institutions in turn affect gdp per capita

the dynamics of continuous cultural traits in social networks abstract we consider an overlapping generations model where continuous cultural traits are transmitted from an adult generation to the children a weighted social network describes how children are influenced not only by their parents but also by other role models within the society parents can invest into the purposeful socialization of their children by strategically displaying a cultural trait which need not coincide with their true cultural trait we observe a cultural substitution effect when parents choose their behavior optimally based on nash equilibrium behavior we then study the dynamics of cultural traits throughout generations these converge if parent s influence on their children is large enough compared to the social environment s influence under convergent dynamics closed subgroups fully assimilate while heterogeneous traits prevail in the other groups speed of convergence is low when parents incentives to socialize their children to the own trait are high

presidential address institutions and culture how and why does distant political and economic history shape the functioning of current institutions this paper argues that individual values and convictions about the scope of application of norms of good conduct provide the missing link evidence from a variety of sources points to two main findings first individual values consistent with generalized as opposed to limited morality are widespread in societies that were ruled by non despotic political institutions in the distant past second well functioning institutions are often observed in countries or regions where individual values are consistent with generalized morality and under different identifying assumptions this suggests a causal effect from values to institutional outcomes the paper ends with a discussion of the implications for future research jel a10 d7 e00

why are rich countries more politically cohesive we document empirically that rich countries are more politically cohesive than poorer countries in order to explain this regularity we provide a model where political cohesion is linked to the emergence of a fully functioning market economy without market exchange the welfare of inherently selfish individuals will be mutually independent whoever has greater bargaining power will be willing to make decisions that enhance the productivity of their supporters at the expense of other groups in society if the gains from specialization are sufficiently large however a market economy will emerge from being essentially non cohesive under self sufficiency the political decision making process becomes cohesive in the market economy because the welfare of individuals will be mutually interdependent as a result of the exchange of goods