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Building trust: public policy, interpersonal trust and economic development


  • Knack, Stephen
  • Zak, Paul J.


Zak & Knack (2001) demonstrate that interpersonal trust substantially impacts economic growth, and that sufficient interpersonal trust is necessary for economic development. To investigate the ability of policy-makers to affect trust levels, this paper builds a formal model characterizing public policies that can raise trust. The model is used to derive optimal funding for trust-raising policies when policy-makers seek to stimulate economic growth. Policies examined include those that increase freedom of association, build civic cultures, enhance contract enforcement, reduce income inequality, and raise educational levels. Testing the model's predictions, we find that only freedom, redistributive transfers, and education efficiently and robustly stimulate prosperity. They do this by strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding, all of which raise trust.

Suggested Citation

  • Knack, Stephen & Zak, Paul J., 2001. "Building trust: public policy, interpersonal trust and economic development," MPRA Paper 25055, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25055

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    References listed on IDEAS

    1. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    2. Ghate, Chetan & Zak, Paul J., 2002. "Growth of government and the politics of fiscal policy," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 435-455, December.
    3. repec:cup:apsrev:v:91:y:1997:i:02:p:245-263_20 is not listed on IDEAS
    4. Knack, Stephen, 2000. "Social capital and the quality of Government : evidence from the U.S. States," Policy Research Working Paper Series 2504, The World Bank.
    5. Yi Feng & Paul J. Zak, 1999. "The Determinants of Democratic Transitions," Journal of Conflict Resolution, Peace Science Society (International), vol. 43(2), pages 162-177, April.
    6. Vernon L. Smith, 1998. "The Two Faces of Adam Smith," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 2-19, July.
    7. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 110(3), pages 681-712.
    8. repec:cup:apsrev:v:88:y:1994:i:04:p:903-910_09 is not listed on IDEAS
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    Cited by:

    1. Tamilina, Larysa, 2008. "The analysis of welfare state effects on social trust in a multidimensional approach," IRISS Working Paper Series 2008-03, IRISS at CEPS/INSTEAD.
    2. Zak, Paul J., 2011. "Moral markets," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 212-233, February.
    3. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
    4. Yuan K. Chou, 2002. "Modelling Social Capital And Growth," Department of Economics - Working Papers Series 865, The University of Melbourne.

    More about this item


    trust; growth; inequality; rule of law; property rights; development;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies


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