Trust, Governance, and Growth: Exploring the Interplay

Thomas R. Bower and Paul N. Wilson

No 239264, Working Papers from University of Arizona, Department of Agricultural and Resource Economics

Abstract: Thin trust and efficacious governance are well-established contributors to economic progress but the interplay between these factors and their joint impact on human flourishing is unclear. We extend previous analyses by expanding the cross-sectional data set to over 100 countries and by employing simultaneous models to capture the interplay between trust, governance and economic growth. We find that in this interdependent system framework that (1) the effect of trust on growth is greater than shown in earlier analyses, (2) trust and governance are complementary components that under adverse circumstances can lead to a low-growth trust trap for some societies, (3) income inequality and fractionalization play important, intermediary roles in explaining levels of trust, governance, and ultimately, economic welfare, and (4) the colonization legacy of each country captures an important component of the current variation across countries in regard to their levels of trust, governance, and economic growth.

Keywords: Institutional and Behavioral Economics; International Development (search for similar items in EconPapers)
Pages: 57
Date: 2016
New Economics Papers: this item is included in nep-gro and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:ags:usazwp:239264

DOI: 10.22004/ag.econ.239264

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