Social trust and patterns of growth

Abstract

The association between social trust and long-run economic growth is well documented. However, which determinants of growth are affected by social trust remains an open question. This paper therefore explores to which extent social trust affects the rate of factor accumulation versus productivity improvements. Previous studies indicate that social trust could affect both the accumulation of physical and human capital and the rate of productivity increases. Existing literature also indicates that part of the growth effects may be due to how trust affects the quality of formal institutions. The effects of trust are estimated in a panel of 64 countries observed in 5-year periods between 1977 and 2017, using growth accounting to separate patterns of growth. The results unequivocally show that social trust predominantly affects long-run growth by affecting the growth of productivity and that only a small share of that effect runs through the effects of trust on formal institutions.