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Does Too Much Trust Hamper Economic Growth?

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  • Felix Roth

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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  • Felix Roth, 2009. "Does Too Much Trust Hamper Economic Growth?," Kyklos, Wiley Blackwell, vol. 62(1), pages 103-128, February.
  • Handle: RePEc:bla:kyklos:v:62:y:2009:i:1:p:103-128
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    References listed on IDEAS

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    1. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
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    5. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 139-154, March.
    6. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 38(2), pages 112-134.
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    Cited by:

    1. BARTOLINI Stefano & SARRACINO Francesco, 2011. "Happy for How Long? How Social Capital and GDP relate to Happiness over Time," LISER Working Paper Series 2011-60, LISER.
    2. 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.
    3. 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.
    4. Horváth, Roman, 2013. "Does trust promote growth?," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 777-788.
    5. Ng, Adam & Ibrahim, Mansor H. & Mirakhor, Abbas, 2016. "Does trust contribute to stock market development?," Economic Modelling, Elsevier, vol. 52(PA), pages 239-250.
    6. 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.
    7. 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.
    8. Jesús Peiró-Palomino, 2016. "Social Capital and Economic Growth in Europe: Nonlinear Trends and Heterogeneous Regional Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(5), pages 717-751, October.
    9. 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.
    10. Stefano Bartolini & Małgorzata Mikucka & Francesco Sarracino, 2017. "Money, Trust and Happiness in Transition Countries: Evidence from Time Series," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 130(1), pages 87-106, January.
    11. 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.
    12. Hans Pitlik & Ludek Kouba, 2015. "Does social distrust always lead to a stronger support for government intervention?," Public Choice, Springer, vol. 163(3), pages 355-377, June.
    13. 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.
    14. 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).
    15. 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.
    16. Carin Cruijsen & Jakob Haan & David-Jan Jansen, 2016. "Trust and Financial Crisis Experiences," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 577-600, June.
    17. Mike Pennock, 2016. "Slower Economic Growth and Subjective Well-Being in the Canadian Context: A Discussion Paper," CSLS Research Reports 2016-09, Centre for the Study of Living Standards.
    18. repec:got:cegedp:124 is not listed on IDEAS
    19. Mikucka, Malgorzata & Sarracino, Francesco, 2014. "Making economic growth and well-being compatible: the role of trust and income inequality," MPRA Paper 59695, University Library of Munich, Germany.
    20. Stefano Bartolini & Francesco Sarracino, 2014. "It's not the economy, stupid! How social capital and GDP relate to happiness over time," Papers 1411.2138, arXiv.org.
    21. Alexandra Gerbasi & Dominika Latusek, 2015. "Trust-building in international business ventures," Grenoble Ecole de Management (Post-Print) hal-01137667, HAL.

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