Social capital in the form of generalized trust has been shown to be a determinant of economic growth in a number of studies. Other studies have explored other consequences of trust, such as its effects on governance, corruption, education and investment. This paper connects the two strands of literature by estimating the effects of trust on growth through a set of potential transmission mechanisms directly. It does so by modelling the process using a three-stage least squares estimator on a sample of countries for which a full data set is available. The results indicate that trust affects schooling and the rule of law directly. These variables in turn affect the investment rate (schooling) and provide a direct effect (rule of law) on the growth rate. The paper closes with a short discussion of the relevance of the findings.
Growth; Trust; Transmission mechanisms
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International conference on business, management and economics, 2005