Publisher:
University of Hamburg, Department of Economics, Senior Lectureship in International Economics, Hamburg
Abstract:
This paper analyzes the intertemporal variation of trust on economic growth. Constructing a unique global country panel dataset and applying a system-generalized method of moments (SYSGMM) estimation approach to a sample of 75 global economies over a 40-year time span (1980-2019), this paper finds evidence of a curvilinear (inverted U-shape) relationship between trust and growth.3 Only a minority of global economies can attain a position close to or above the optimum threshold for trust and growth. Most economies, in fact, fall well below that threshold, and for them, it is incumbent to consider trust-building measures in order to achieve higher growth. In countries that are close to the optimum threshold, however, such policies can likely be neglected. In fact, in countries where trust levels exceed the optimum, an increase in trust might even hamper growth.
