Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 705: Trust and Growth: A Shaky Relationship

Niclas Berggren (), Mikael Elinder () and Henrik Jordahl ()
Additional contact information
Niclas Berggren: The Ratio Institute, Postal: P.O. Box 5095, SE-102 42 Stockholm, Sweden
Mikael Elinder: Uppsala University, Postal: Department of Economics, P.O. Box 513, SE-751 20 Uppsala, Sweden
Henrik Jordahl: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: 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-codes: O40; Z13

19 pages, May 24, 2007

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