Does Trust Promote Growth?

Roman Horvath

No 319, Working Papers from Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies)

Abstract: We examine the effect of generalized trust on long-term economic growth. Unlike in previous studies, we use Bayesian model averaging to deal rigorously with model uncertainty and attendant omitted variable bias. In addition, we address endogeneity and assess whether the effect of trust on growth is causal. Examining more than forty regressors for nearly fifty countries, we show that trust exerts a positive effect on long-term growth and, based on the posterior inclusion probabilities, suggest that trust is an important driver of long-term growth. Our results also show that trust is key for growth in countries with a weak rule of law.

Keywords: trust; economic growth; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: O10 O43 Z13 (search for similar items in EconPapers)
Pages: 26
Date: 2012-07
New Economics Papers: this item is included in nep-fdg and nep-soc
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Does trust promote growth? (2013)
Working Paper: Does Trust Promote Growth? (2012)
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