IDEAS home Printed from https://ideas.repec.org/p/aim/wpaimx/1227.html
   My bibliography  Save this paper

Does Trust Favor Macroeconomic Stability?

Author

Listed:
  • Marc Sangnier

    (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)

Abstract

This paper investigates the relationship between trust and macroeconomic volatility. An illustrative model rationalizes the relationship between trust and volatility. In this model, trust relaxes credit constraints and diminishes investment's procyclicality. I provide empirical evidence for the basic predictions of the model. Then, I show that higher trust is associated with lower macroeconomic volatility in a cross section of countries. This relationship persists when various covariates are taken into account. I use inherited trust of Americans as an instrumental variable for trust in their origin country to overcome reverse causality concerns. Using changes in inherited trust over the 20th century, I do not find clear evidence that increasing trust is also associated with decreasing volatility across time at the country level.

Suggested Citation

  • Marc Sangnier, 2012. "Does Trust Favor Macroeconomic Stability?," AMSE Working Papers 1227, Aix-Marseille School of Economics, France.
  • Handle: RePEc:aim:wpaimx:1227
    as

    Download full text from publisher

    File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2012_-_nr_27.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 1999. "The Quality of Government," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 15(1), pages 222-279, April.
    2. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    3. Miklós Koren & Silvana Tenreyro, 2007. "Volatility and Development," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 243-287.
    4. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1015-1049.
    5. Patrick Francois & Jan Zabojnik, 2005. "Trust, Social Capital, and Economic Development," Journal of the European Economic Association, MIT Press, vol. 3(1), pages 51-94, March.
    6. Raquel Fernández & Alessandra Fogli, 2006. "Fertility: The Role of Culture and Family Experience," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 552-561, 04-05.
    7. Oguzhan Dincer & Eric Uslaner, 2010. "Trust and growth," Public Choice, Springer, vol. 142(1), pages 59-67, January.
    8. Alesina, Alberto & Devleeschauwer, Arnaud & Easterly, William & Kurlat, Sergio & Wacziarg, Romain, 2003. "Fractionalization," Journal of Economic Growth, Springer, vol. 8(2), pages 155-194, June.
    9. Alessandra Fogli & Raquel Fernandez, 2009. "Culture: An Empirical Investigation of Beliefs, Work, and Fertility," American Economic Journal: Macroeconomics, American Economic Association, vol. 1(1), pages 146-177, January.
    10. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    11. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    12. Aghion, Philippe & Angeletos, George-Marios & Banerjee, Abhijit & Manova, Kalina, 2010. "Volatility and growth: Credit constraints and the composition of investment," Journal of Monetary Economics, Elsevier, vol. 57(3), pages 246-265, April.
    13. Ernst Fehr & Urs Fischbacher & Bernhard von Rosenbladt & J�rgen Schupp & Gert G. Wagner, "undated". "A Nation-Wide Laboratory: Examining trust and trustworthiness by integrating behavioral experiments into representative surveys," IEW - Working Papers 141, Institute for Empirical Research in Economics - University of Zurich.
    14. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    15. Rodrik, Dani, 1999. "Where Did All the Growth Go? External Shocks, Social Conflict, and Growth Collapses," Journal of Economic Growth, Springer, vol. 4(4), pages 385-412, December.
    16. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(3), pages 811-846.
      • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
    17. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
    18. 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.
    19. Philippe Aghion & Philippe Askenazy & Nicolas Berman & Gilbert Cette & Laurent Eymard, 2012. "Credit Constraints And The Cyclicality Of R&D Investment: Evidence From France," Journal of the European Economic Association, European Economic Association, vol. 10(5), pages 1001-1024, October.
    20. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    21. Justin Wolfers, 2003. "Is Business Cycle Volatility Costly? Evidence from Surveys of Subjective Well‐Being," International Finance, Wiley Blackwell, vol. 6(1), pages 1-26, March.
    22. Nathan Nunn & Leonard Wantchekon, 2011. "The Slave Trade and the Origins of Mistrust in Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3221-3252, December.
    23. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
    24. Guido Tabellini, 2008. "The Scope of Cooperation: Values and Incentives," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 905-950.
    25. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    26. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-1155, December.
    27. Thöni, Christian & Tyran, Jean-Robert & Wengström, Erik, 2012. "Microfoundations of social capital," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 635-643.
    28. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-338, May.
    29. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Alfred Marshall Lecture Social Capital as Good Culture," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 295-320, 04-05.
    30. Marc Sangnier, 2011. "The co-evolution of social capital and financial development," Economics Bulletin, AccessEcon, vol. 31(2), pages 1063-1081.
    31. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    32. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    33. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    34. Paola Sapienza & Anna Toldra‐Simats & Luigi Zingales, 2013. "Understanding Trust," Economic Journal, Royal Economic Society, vol. 123(12), pages 1313-1332, December.
    35. William Easterly & Ross Levine, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1203-1250.
    36. Daron Acemoglu & Simon Johnson & Pablo Querubin & James A. Robinson, 2008. "When Does Policy Reform Work? The Case of Central Bank Independence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 351-429.
    37. Durante, Ruben, 2009. "Risk, Cooperation and the Economic Origins of Social Trust: an Empirical Investigation," MPRA Paper 25887, University Library of Munich, Germany.
    38. Knack, Stephen, 2001. "Trust, assocational life, and economic performance," MPRA Paper 27247, University Library of Munich, Germany.
    39. Guido Tabellini, 2007. "The Scope of Cooperation: Norms and Incentives," Levine's Working Paper Archive 321307000000000866, David K. Levine.
    40. Aghion, P. & Askenazy, P. & Berman, N. & Cette, G. & Eymard, L., 2008. "Credit Constraints and the Cyclicality of R&D Investment: Evidence from France," Working papers 198, Banque de France.
    41. Nejat Anbarci & Jonathan Hill & Hasan Kirmanoglu, 2011. "Institutions and Growth Volatility," Economic Papers, The Economic Society of Australia, vol. 30(2), pages 233-252, June.
    42. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers.
    43. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2007. "Social Capital as Good Culture," Economics Working Papers ECO2007/57, European University Institute.
    44. repec:hal:spmain:info:hdl:2441/4km7l02j139aj8hl7kcccmqk9s is not listed on IDEAS
    45. Spilimbergo, Antonio & Giuliano, Paola, 2009. "Growing Up in a Recession: Beliefs and the Macroeconomy," CEPR Discussion Papers 7399, C.E.P.R. Discussion Papers.
    46. Christopher D. Carroll & Byung-Kun Rhee & Changyong Rhee, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 685-699.
    47. Dincer, Oguzhan C. & Uslaner, Eric, 2007. "Trust and Growth," Knowledge, Technology, Human Capital Working Papers 9094, Fondazione Eni Enrico Mattei (FEEM).
    48. repec:hal:spmain:info:hdl:2441/432sbils8u9t7qa99cii5psht1 is not listed on IDEAS
    49. Gertler, Mark & Kiyotaki, Nobuhiro, 2010. "Financial Intermediation and Credit Policy in Business Cycle Analysis," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 11, pages 547-599, Elsevier.
    50. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1015-1049.
    51. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Algan, Yann & Cahuc, Pierre, 2014. "Trust, Growth, and Well-Being: New Evidence and Policy Implications," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 2, pages 49-120, Elsevier.
    2. Karaja, Elira & Rubin, Jared, 2022. "Θ The cultural transmission of trust norms: Evidence from a lab in the field on a natural experiment," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 1-19.
    3. Yann Algan & Pierre Cahuc, 2014. "Trust, Well-Being and Growth: New Evidence and Policy Implications," SciencePo Working papers Main hal-01169659, HAL.
    4. Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1015-1049.
    5. Xu, Xu & Jin, Xin, 2018. "The autocratic roots of social distrust," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 362-380.
    6. Nathan Nunn & Leonard Wantchekon, 2011. "The Slave Trade and the Origins of Mistrust in Africa," American Economic Review, American Economic Association, vol. 101(7), pages 3221-3252, December.
    7. Cline, Brandon N. & Williamson, Claudia R., 2016. "Trust and the regulation of corporate self-dealing," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 572-590.
    8. Breuer, Janice Boucher & McDermott, John, 2013. "Respect, responsibility, and development," Journal of Development Economics, Elsevier, vol. 105(C), pages 36-47.
    9. Yann Algan & Pierre Cahuc, 2014. "Trust, Well-Being and Growth: New Evidence and Policy Implications," Post-Print hal-01169659, HAL.
    10. Meier, Stephan & Pierce, Lamar & Vaccaro, Antonino & La Cara, Barbara, 2016. "Trust and in-group favoritism in a culture of crime," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 78-92.
    11. Ljunge, Martin, 2014. "Trust issues: Evidence on the intergenerational trust transmission among children of immigrants," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 175-196.
    12. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 923-1012, Elsevier.
    13. Gur, Nurullah & Bjørnskov, Christian, 2017. "Trust and delegation: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 644-657.
    14. repec:hal:spmain:info:hdl:2441/33o86cn6qp83dot08iir97915s is not listed on IDEAS
    15. Maxim Ananiev & Sergei Guriev, 2014. "The Effect of Income on Trust: the Evidence from 2009 Crisis in Russia," Working Papers hal-03429914, HAL.
    16. Horváth, Roman, 2013. "Does trust promote growth?," Journal of Comparative Economics, Elsevier, vol. 41(3), pages 777-788.
    17. repec:spo:wpmain:info:hdl:2441/8lt2edmul9geov3cf3fqf7h92 is not listed on IDEAS
    18. Yu, Shu & Beugelsdijk, Sjoerd & de Haan, Jakob, 2015. "Trade, trust and the rule of law," European Journal of Political Economy, Elsevier, vol. 37(C), pages 102-115.
    19. Yann Algan & Clément Malgouyres & Thierry Mayer & Mathias Thoenig, 2022. "The Economic Incentives of Cultural Transmission: Spatial Evidence from Naming Patterns Across France," The Economic Journal, Royal Economic Society, vol. 132(642), pages 437-470.
    20. Francesco Giavazzi & Ivan Petkov & Fabio Schiantarelli, 2019. "Culture: persistence and evolution," Journal of Economic Growth, Springer, vol. 24(2), pages 117-154, June.
    21. Guido Tabellini, 2007. "Institutions and Culture," Working Papers 330, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    22. Alberto Alesina & Yann Algan & Pierre Cahuc & Paola Giuliano, 2015. "Family Values And The Regulation Of Labor," Journal of the European Economic Association, European Economic Association, vol. 13(4), pages 599-630, August.

    More about this item

    Keywords

    Trust; volatility; macroeconomic stability; social capital.;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aim:wpaimx:1227. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gregory Cornu (email available below). General contact details of provider: https://edirc.repec.org/data/amseafr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.