Trust and Macroeconomic Performance: A Two-Step Approach

Posted: 25 Oct 2018 Last revised: 4 Feb 2020

See all articles by Sokchea Lim

Sokchea Lim

John Carroll University

AKM Mahbub Morshed

School of Analytics, Finance, and Economics

Channary Khun

Southern Illinois University at Carbondale

Date Written: January 1, 2018

Abstract

We reexamine the role of trust in macroeconomic performance using a new econometric method, a two-step approach adopted by Di Tella et al. (AER, 2001). In the first step, the measure of trust is constructed from the micro-regression of trust. This method allows us to extract the component of trust that is not influenced by individual-level socio-economic factors. In the second step, measures of macroeconomic performances are regressed on this improved measure of country-level trust. We find a strong positive relationship between the level of trust and real GDP per person stipulated by an increase in investment. Our results also indicate that the impact of trust on macroeconomic variables estimated by previous studies is biased upwards.

Keywords: Trust; Per Capita Income; Investment

JEL Classification: O43; O47; O50; Z13

Suggested Citation

Lim, Sokchea and Morshed, AKM Mahbub and Khun, Channary, Trust and Macroeconomic Performance: A Two-Step Approach (January 1, 2018). Economic Modelling, Vol. 68, pp. 293-305, Available at SSRN: https://ssrn.com/abstract=3258936

Sokchea Lim (Contact Author)

John Carroll University ( email )

1 John Carroll BLVD
University Heights, OH 44118
United States

AKM Mahbub Morshed

School of Analytics, Finance, and Economics ( email )

College of Business and Analytics
Mail Code 4515
Carbondale, IL 62901-4515
United States
6184535740 (Phone)
6184532717 (Fax)

HOME PAGE: http://https://sites.google.com/view/akmmorshed

Channary Khun

Southern Illinois University at Carbondale ( email )

Rehn Hall - Mail Code 4626
Carbondale, IL Illinois 62901-4515
United States

HOME PAGE: http://www.siu.edu

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