Trust and economic development on the example of European economies in 2017–2020: PLS-SEM modeling

Economic development belongs to the group of the most important categories not only in economic, but also social and political theory. Even though this category has been the subject of research since the beginning of the formation of economics as a science, it seems that to this day it has not been possible to explain exactly why economies, despite similar resources, develop at a significantly varied pace. The quality of institutions becomes a factor of development, enabling the analysis of the economy from a much broader perspective. The question of whether institutions are relevant for economic development seems rhetorical. The group of norms of the greatest importance for development are informal ones. One of the most important of their elements is social trust. This paper aims to identify the relationship between social trust and economic development and to quantify these latent variables in selected European countries in 2017–2020. This article applies partial least squares structural equation modeling (PLS-SEM). The PLS-SEM model covered 35 European economies in 2017–2020. The analyses carried out in this paper indicate that social trust has a strong, positive and statistically significant influence on economic development dynamics. Differences in the level of trust seem to be a valid reason for notable developmental disproportions among European countries. Moreover, trust towards other people is more important than confidence in organizations in shaping social trust, and consequently accelerating economic development. Social trust can be categorized as a “deep” determinant of growth, due to its impacts on the growth itself and its other determinants. Therefore, it is crucial to make trust a strategic priority by policy makers. Not only does the article provide a novel method for measuring social trust and development, but also for identifying the relationship between these latent categories.