Cultural Origins of Business Formation in the Context of Kinship and Trust

Abstract

This paper presents a conceptual framework connecting historical kinship structures and generalized trust into modern business formation. Kinship intensity, defined as the degree of strength in family ties, is shaping the social and economic outlook of societies. Building upon the existing literature, I argue that societies with strong kinship ties often exhibit collectivist characteristics, leading to less trust towards outsiders. This hinders market efficiency and collaborative partnerships, resulting in business formation being largely confined to family-owned enterprises. Conversely, societies with loose kinship structures exhibits higher level of generalized trust that enable to promote engagements beyond family networks. This promotes establishing larger firms with strangers, more efficient markets, and greater cooperation with foreign firms. The paper suggests that kinship and trust behavior are deeply-rooted in culture and influence social and economic development. It is important for policymakers to support initiatives that foster trust beyond family ties in order to promote collaboration among diverse market participants.