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Trust and macroeconomic performance: A two-step approach

Sokchea Lim (), Akm Morshed and Channary Khun

Economic Modelling, 2018, vol. 68, issue C, 293-305

Abstract: We reexamine the role of trust in macroeconomic performance using a new econometric method, a two-step approach adopted by Di Tella et al. (AER, 2001). In the first step, the measure of trust is constructed from the micro-regression of trust. This method allows us to extract the component of trust that is not influenced by individual-level socio-economic factors. In the second step, measures of macroeconomic performances are regressed on this improved measure of country-level trust. We find a strong positive relationship between the level of trust and real GDP per person stipulated by an increase in investment. Our results also indicate that the impact of trust on macroeconomic variables estimated by previous studies is biased upwards.

Keywords: Trust; Per capita income; Investment (search for similar items in EconPapers)
JEL-codes: O43 O47 O50 Z13 (search for similar items in EconPapers)
Date: 2018
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