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Trust and the accumulation of physical and human capital

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  • Dearmon, Jacob
  • Grier, Robin

Abstract

Recent empirical work has shown that trust plays an important role in economic development. In this paper, we delve deeper into the mechanism behind that relationship. Specifically, we investigate the effect of trust on human and physical capital while controlling for the fact that the two types of capital are simultaneously determined. In a sample of 50 countries from 1976 to 2005, we show that trust has a positive and significant effect on human capital and a non-linear effect on physical capital. Increasing trust in a low-trust country has a greater impact on the accumulation of physical capital than an identical increase in trust in a high-trust country. We go on to investigate the interaction between institutions and trust and find that institutional reform is less effective at promoting investment in countries with high levels of trust.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 27 (2011)
Issue (Month): 3 (September)
Pages: 507-519

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Handle: RePEc:eee:poleco:v:27:y:2011:i:3:p:507-519

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Web page: http://www.elsevier.com/locate/inca/505544

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Keywords: Trust Physical capital Human capital Development Investment Education;

References

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Citations

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Cited by:
  1. Roman Horváth, 2012. "Does Trust Promote Growth?," Working Papers IES 2012/09, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2012.
  2. Dridi, Mohamed, 2013. "Corruption and Economic Growth: The Transmission Channels," MPRA Paper 47873, University Library of Munich, Germany.
  3. 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.
  4. Hamideh Mohtashami Borzadaran & Mehdi Behname & Sayed Mahdi Mostafavi, 2013. "Natural Resources, Openness and Income Inequality in Iran," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 16(49), pages 3-26, September.
  5. Luca Zanin & Rosalba Radice & Giampiero Marra, 2013. "Estimating the Effect of Perceived Risk of Crime on Social Trust in the Presence of Endogeneity Bias," Social Indicators Research, Springer, vol. 114(2), pages 523-547, November.
  6. Jesús Peiró-Palomino, 2013. "European regional convergence revisited: The role of space and the intangible assets," Working Papers 2013/11, Economics Department, Universitat Jaume I, Castellón (Spain).
  7. Bjornskov, Christian & Bogetic, Zeljko & Hillman, Arye & Popovic, Milenko, 2014. "Trust and Identity in a Small, Post-Socialist, Post-Crisis Society," EconStor Preprints 95968, ZBW - German National Library of Economics.
  8. d'Agostino, Giorgio & Scarlato, Margherita, 2012. "Inclusive Institutions, Innovation and Economic Growth: Estimates for European Countries," MPRA Paper 43098, University Library of Munich, Germany.
  9. Jesús Peiró-Palomino & Anabel Forte Deltell, 2013. "Does social capital matter for European regional growth?," Working Papers 2013/02, Economics Department, Universitat Jaume I, Castellón (Spain).
  10. Christian Bjørnskov & Pierre-Guillaume Méon, 2012. "Trust as the missing root of institutions, education, and development," Working Papers CEB 12-031, ULB -- Universite Libre de Bruxelles.

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