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Does Too Much Trust Hamper Economic Growth?

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  • Felix Roth
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    Abstract

    This paper examines the relationship between trust and economic growth. Taking panel data and using a fixed-effects estimation for a 41-country sample over the time period from 1980 to 2004 and with a total of 129 observations, the paper points out that economic growth is negatively related to an increase in trust. This negative finding is in contrast to most empirical findings using a cross-sectional design. The common knowledge which has governed the nature of discussions in social science and economics for the last ten years, that trust is generally positively related to economic performance, must be seriously questioned. From a policy point of view an increase in trust is crucial for countries with low levels of trust, but can likely be neglected by countries with sufficient levels of trust and may even hamper economic performance in countries with high levels of trust. The relationship is tested in the context of EU countries, OECD countries and developing countries. Interpersonal trust and systemic trust is differentiated. Copyright 2009 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Kyklos.

    Volume (Year): 62 (2009)
    Issue (Month): 1 (02)
    Pages: 103-128

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    Handle: RePEc:bla:kyklos:v:62:y:2009:i:1:p:103-128

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    Cited by:
    1. Michel Kanmogne & Kent Eskridge, 2013. "Identifying some major determinants of entrepreneurial partnership, using a confounded factorial conjoint choice experiment," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(2), pages 943-960, February.
    2. Roth, Felix & Gros, Daniel & Nowak-Lehmann D., Felicitas, 2012. "Has the financial crisis eroded citizens' trust in the European Central Bank? Panel data evidence for the Euro area, 1999-2011," Center for European, Governance and Economic Development Research Discussion Papers 124, University of Goettingen, Department of Economics.
    3. BARTOLINI Stefano & MIKUCKA Malgorzata & SARRACINO Francesco, 2012. "Money, Trust and Happiness in Transition Countries: Evidence from Time Series," CEPS/INSTEAD Working Paper Series 2012-04, CEPS/INSTEAD.
    4. Peiró-Palomino, Jesús & Tortosa-Ausina, Emili, 2013. "Can trust effects on development be generalized? A response by quantile," European Journal of Political Economy, Elsevier, vol. 32(C), pages 377-390.
    5. Hans Pitlik & Ludek Kouba, 2014. "Does social distrust always lead to a stronger support for government intervention?," WWWforEurope Policy Paper series 8, WWWforEurope.
    6. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
    7. Asongu, Simplice A. & Kodila-Tedika, Oasis, 2013. "Trust and Prosperity: A Conditional Relationship," MPRA Paper 46865, University Library of Munich, Germany, revised 15 Jun 2013.
    8. BARTOLINI Stefano & SARRACINO Francesco, 2011. "Happy for How Long? How Social Capital and GDP relate to Happiness over Time," CEPS/INSTEAD Working Paper Series 2011-60, CEPS/INSTEAD.
    9. Roman Horváth, 2012. "Does Trust Promote Growth?," Working Papers 319, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
    10. Roth, Felix & Gros, Daniel & Nowak-Lehmann D., Felicitas, 2012. "Has the financial crisis eroded citizens' trust in the European Central Bank? Panel data evidence for the Euro area, 1999-2011," Center for European, Governance and Economic Development Research Discussion Papers 124, University of Goettingen, Department of Economics.
    11. Hall, Stephen G & Ahmad, Mahyudin, 2013. "Can Trust Explain Social Capital Effect on Property Rights and Growth?," MPRA Paper 48440, University Library of Munich, Germany.
    12. Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
    13. Dimitrova-Grajzl, Valentina & Grajzl, Peter & Guse, A. Joseph, 2012. "Trust, perceptions of corruption, and demand for regulation: Evidence from post-socialist countries," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(3), pages 292-303.
    14. Hassani Mahmooei, Behrooz & Parris, Brett, 2012. "Dynamics of effort allocation and evolution of trust: an agent-based model," MPRA Paper 44919, University Library of Munich, Germany.

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