Does trust matter for economic growth and human development? Empirical evidence from a panel of countries

Trust among individuals of a society is an important dimension of social capital and may have different economic and development implications. The present study is an attempt to investigate the relationship of trust with economic growth and human development. It is unique in at least two different aspects. Firstly, it has used an index for quantifying trust which may be more comprehensive measure as compared with already used measures of trust by different research studies. The index has been constructed by taking into account different variables related with interpersonal safety and trust. Both perception-based as well as actionable indicators have been used in the construction of the index which adds to its reliability and usefulness. Secondly, the study has used paneldata for a large set of countries of the world. Panel-data framework has certain advantages over cross-country regression. Coverage of our data-set for large number of countries of the world also adds to the authenticity of our analysis. Our findings suggest that trust is not significantly associated with economic growth. However, it shows a positive and significant effect on human development. Hence, instead of having direct effect on economic growth, trust may affect economic growth indirectly through its positive effects on human development. The study will be helpful in enhancing the understanding regarding the role of trust in determining economic growth and human development.