Trust, Governance, and Growth: Exploring the Interplay

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.

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Working or Discussion Paper
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JEL Codes:
O15; O17; )43
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Departmental Working Paper

 Record created 2017-04-01, last modified 2020-10-28

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