Financial stress and economic growth: The moderating role of trust

Panagiota Makrychoriti, Fotios Pasiouras and Menelaos Tasiou
Additional contact information
Panagiota Makrychoriti: Birkbeck College [University of London]
Fotios Pasiouras: Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School, MRM - Montpellier Research in Management - UPVD - Université de Perpignan Via Domitia - UM - Université de Montpellier
Menelaos Tasiou: University of Portsmouth

Post-Print from HAL

Abstract: The literature suggests that trust can influence the behavior of economic agents and improve access to financing for both households and corporations. Subsequently, this might have implications for the consumption of households and the investments of corporations. Therefore, trust could mitigate the negative impact of financial stress on economic growth. To test this hypothesis, we use a sample of EU countries over the period 2002–2020 and examine the interaction of trust with financial stress in shaping GDP growth. The interaction term enters the estimations with a positive and statistically significant coefficient, and it therefore mitigates the negative impact of financial stress on economic growth. Furthermore, by disaggregating the GDP into its four main components, we find that the moderating effect of trust flows through the two main components of GDP mentioned above, namely households' consumption and firms' investments. Additionally, we observe that the interaction effect becomes weaker in countries with a higher economic freedom and is strengthened in centre and left‐wing governments compared to right‐wing economically oriented ones.

Date: 2022-02
References: Add references at CitEc
Citations:

Published in Kyklos, 2022, 75 (1), pp.48-74. ⟨10.1111/kykl.12285⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05085115

DOI: 10.1111/kykl.12285

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().