Trust and Growth: A Shaky Relationship
20 Pages Posted: 2 Oct 2006 Last revised: 3 Nov 2009
Date Written: May 24, 2007
We conduct an extensive robustness analysis of the relationship between trust and growth by investigating a later time period and a bigger sample than in previous studies. In addition to robustness tests that focus on model uncertainty, we systematize the investigation of outlier influence on the results by using the robust estimation technique Least Trimmed Squares. We find that when outliers (especially China) are removed, the trust-growth relationship is no longer robust. On average, the trust coefficient is half as large as in previous findings.
Keywords: trust, growth, robustness, social capital, outliers
JEL Classification: O40, Z13
Suggested Citation: Suggested Citation