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Trust, Landscape, And Economic Development

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  • Sherif Khalifa

    () (California State University, Fullerton, USA)

Abstract

This paper examines the effect of trust on economic development. The key difficulty in estimating a causal effect of trust on economic development, is that it is endogenous to economic development. Therefore, to identify a causal effect from a cultural variable such as trust to economic development, we have to find some exogenous source of variation in trust. This paper estimates the effect of trust on economic development using new instrumental variables. The instruments used for trust are the mean elevation and the terrain ruggedness. In this context, the paper examines the relationship between trust and the logarithm of real Gross Domestic Product per capita. The paper focuses on trust in people from another nationality, trust in people from another religion, trust in people you know personally, trust in people you meet for the first time, trust in your family, and trust in your neighborhood. The results show that these variables have a statistically significant positive association with economic development. These results are robust after the inclusion of control variables such as the fractionalization indicator, continental dummies, and indicators for the legal origin and the colonial origin. The paper also conducts two stage least squares regressions. The second stage is a regression of the logarithm of real Gross Domestic Product per capita on each of the trust variables. In the first stage, the geographic factors that statistically explain trust, such as elevation and terrain ruggedness, are used as instrumental variables. The results of the empirical estimation show that trust, instrumented by these geographic variables, explain cross country variations in economic development.

Suggested Citation

  • Sherif Khalifa, 2016. "Trust, Landscape, And Economic Development," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(1), pages 19-32, March.
  • Handle: RePEc:jed:journl:v:41:y:2016:i:1:p:19-32
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    File URL: http://www.jed.or.kr/full-text/41-1/2.pdf
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    References listed on IDEAS

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    1. Nathan Nunn & Diego Puga, 2012. "Ruggedness: The Blessing of Bad Geography in Africa," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 20-36, February.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1251-1288.
    3. Hernando Zuleta, 2012. "Seasonal Fluctuations And Economic Growth," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 37(4), pages 1-27, December.
    4. Guido Tabellini, 2010. "Culture and Institutions: Economic Development in the Regions of Europe," Journal of the European Economic Association, European Economic Association, vol. 8(4), pages 677-716, June.
    5. Miriam Bruhn & Francisco A. Gallego, 2012. "Good, Bad, and Ugly Colonial Activities: Do They Matter for Economic Development?," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 433-461, May.
    6. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    7. Bertocchi, Graziella & Canova, Fabio, 2002. "Did colonization matter for growth?: An empirical exploration into the historical causes of Africa's underdevelopment," European Economic Review, Elsevier, vol. 46(10), pages 1851-1871, December.
    8. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
    9. James Feyrer & Bruce Sacerdote, 2009. "Colonialism and Modern Income: Islands as Natural Experiments," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 245-262, May.
    10. Theil, Henri & Galvez, Janet, 1995. "On Latitude and Affluence: The Equatorial Grand Canyon," Empirical Economics, Springer, vol. 20(1), pages 163-166.
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    More about this item

    Keywords

    Geography; Trust; Economic Development;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • Z1 - Other Special Topics - - Cultural Economics

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