Trust and Specialization in Complexity: Evidence from U.S. States

Abstract

U.S. states with a high level of trust specialize in industries that involve more complex input-output relationships. This specialization pattern is not driven by differences in the states' and industries' other observable characteristics. While it is possible that specialization in complex industries helps foster trust, an original instrumental variable strategy confirms that trust is a factor in specialization in more complex industries. The importance of complexity in economic growth and development means that we should pay more attention to the role that social norms play in driving patterns of economic specialization.

Keywords: E23, E71, R32, Z13