The trust paradox

Francesco Sarracino and Giulia Slater

Chapter 8 in A Research Agenda for Social Capital in Economic Development, 2025, pp 173-195 from Edward Elgar Publishing

Abstract: Countries where interpersonal trust is high have, on average, high gross domestic product (GDP) per capita. Does this mean that economic growth is associated with growing trust over time? We review the literature addressing this question and provide updated empirical evidence on the effects of economic growth on trust over time. Trust is a well-established measure of social capital, widely considered in economic studies. We use country panel data from the Penn World Tables (Feenstra et al., 2015) and information on people trusting others from the Survey Data Recycling (SDR) v.2.0 database, the largest source of data on trust currently available. Results confirm the positive cross-sectional relation found in previous studies. However, over time trust decreases when GDP grows. A number of robustness checks and a test of causality support this conclusion. The relationship between economic growth and trust over time is negative when inequality is higher than the country's average level of inequality. This is possible because growing income inequality increases the chances for social comparisons, which substitute trust in individuals’ utility functions. Additionally, income inequality hampers cooperation and cohesiveness in favor of competition, and increases the probability of social unrest.

Keywords: Economic growth; Income inequality; Trust (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035315819
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