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Building trust: public policy, interpersonal trust and economic development

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  • Knack, Stephen
  • Zak, Paul J.

Abstract

Zak & Knack (2001) demonstrate that interpersonal trust substantially impacts economic growth, and that sufficient interpersonal trust is necessary for economic development. To investigate the ability of policy-makers to affect trust levels, this paper builds a formal model characterizing public policies that can raise trust. The model is used to derive optimal funding for trust-raising policies when policy-makers seek to stimulate economic growth. Policies examined include those that increase freedom of association, build civic cultures, enhance contract enforcement, reduce income inequality, and raise educational levels. Testing the model's predictions, we find that only freedom, redistributive transfers, and education efficiently and robustly stimulate prosperity. They do this by strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding, all of which raise trust.

Suggested Citation

  • Knack, Stephen & Zak, Paul J., 2001. "Building trust: public policy, interpersonal trust and economic development," MPRA Paper 25055, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:25055
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    References listed on IDEAS

    as
    1. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
    2. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    3. Ghate, Chetan & Zak, Paul J., 2002. "Growth of government and the politics of fiscal policy," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 435-455, December.
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    5. Vernon L. Smith, 1998. "The Two Faces of Adam Smith," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 2-19, July.
    6. Weingast, Barry R., 1997. "The Political Foundations of Democracy and the Rule of the Law," American Political Science Review, Cambridge University Press, vol. 91(2), pages 245-263, June.
    7. Yi Feng & Paul J. Zak, 1999. "The Determinants of Democratic Transitions," Journal of Conflict Resolution, Peace Science Society (International), vol. 43(2), pages 162-177, April.
    8. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    9. Burkhart, Ross E. & Lewis-Beck, Michael S., 1994. "Comparative Democracy: The Economic Development Thesis," American Political Science Review, Cambridge University Press, vol. 88(4), pages 903-910, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tamilina, Larysa, 2012. "Social policies and trust in the social security system," MPRA Paper 96519, University Library of Munich, Germany.
    2. Tamilina, Larysa, 2011. "Policy specific effects of welfare states’ impact on social trust," MPRA Paper 96515, University Library of Munich, Germany.
    3. Tamilina, Larysa, 2012. "Characteristics of social policies and social trust," MPRA Paper 96517, University Library of Munich, Germany.
    4. Yuan K. Chou, 2002. "Modelling Social Capital And Growth," Department of Economics - Working Papers Series 865, The University of Melbourne.
    5. Tamilina, Larysa, 2011. "The Impact of Welfare States on Social Trust Formation: A Multidimensional Approach," MPRA Paper 96489, University Library of Munich, Germany.
    6. Tamilina, Larysa, 2018. "The impact of welfare states on social trust: theoretical and empirical foundations," MPRA Paper 96512, University Library of Munich, Germany.
    7. Marco Franco & Maurizio Benedetti & Massimo Folador & Roberto Manzi, 2015. "Pianoforte Group: Una storia di successo dei marchi Carpisa - Yamamay - Jaked ispirati alle origini del pensiero economico dell'Economia Civile," LIUC Papers in Ethics, Law and Economics 288, Cattaneo University (LIUC).
    8. Tamilina, Larysa, 2011. "The welfare state and social trust: a three-dimensional approach of analysis," MPRA Paper 96513, University Library of Munich, Germany.
    9. Tamilina, Larysa, 2018. "Theories of social trust formation: a brief literature overview," MPRA Paper 96511, University Library of Munich, Germany.
    10. Leonardo Becchetti & Melania Michetti, 2008. "When Consumption Generates Social Capital: Creating Room for Manoeuvre for Pro-Poor Policies," Working Papers 88, ECINEQ, Society for the Study of Economic Inequality.
    11. Justino, Patricia & Martorano, Bruno, 2018. "Welfare spending and political conflict in Latin America, 1970–2010," World Development, Elsevier, vol. 107(C), pages 98-110.
    12. Tamilina, Larysa, 2011. "The welfare state and social trust: a descriptive analysis," MPRA Paper 96514, University Library of Munich, Germany.
    13. TAMILINA Larysa, 2008. "The analysis of welfare state effects on social trust in a multidimensional approach," IRISS Working Paper Series 2008-03, IRISS at CEPS/INSTEAD.
    14. Tamilina, Larysa, 2018. "A brief overview of approaches to defining social trust," MPRA Paper 96510, University Library of Munich, Germany.
    15. Zak, Paul J., 2011. "Moral markets," Journal of Economic Behavior & Organization, Elsevier, vol. 77(2), pages 212-233, February.
    16. Anett HODOSI, 2012. "The effects of immigration on the socio-economic landscape of the United Kingdom," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 3, pages 121-139, December.
    17. Christian Bjørnskov, 2007. "Determinants of generalized trust: A cross-country comparison," Public Choice, Springer, vol. 130(1), pages 1-21, January.
    18. Tamilina, Larysa, 2011. "Decommodification and stratification effects on social trust," MPRA Paper 96516, University Library of Munich, Germany.
    19. Tamilina, Larysa, 2012. "Group specific effects of social policies on social trust," MPRA Paper 96518, University Library of Munich, Germany.

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    More about this item

    Keywords

    trust; growth; inequality; rule of law; property rights; development;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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