Trust and innovation activity in European regions : a geographic instrumental variables approach

For a cross-section of 123 European regions, a positive causal effect of generalised trust on innovation activity is identified using a set of geographic instrumental variables from climate and soil data. The geographic instrumental variables are defined and discussed. The popular explanation for spatial clustering of innovation by "interregional knowledge spillovers" is empirically tested. It is found that spatial clustering of innovation activity can be better explained by a positive influence of trust on innovation combined with the fact that neighboring regions typically show similar levels of trust. -- Social Capital ; Trust ; Innovation ; Regional Economics ; Europe