Trust and economic growth: a robustness analysis

Abstract

This paper analyses the robustness of results on the relationship between growth and trust previously derived by Knack and Keefer (1997) and Zak and Knack (2001) along several dimensions, acknowledging the complexity of the concept of robustness. Our results show that the Knack and Keefer results are only limitedly robust, whereas the results found by Zak and Knack are highly robust in terms of significance of the estimated coefficients and reasonably robust in terms of the estimated effect size. The improvement in robustness is caused by the inclusion of countries with relatively low scores on trust (most notably, the Philippines and Peru). Overall, our results point at a relatively important role for trust. However, the answer to the question how large this payoff actually is depends on the set of conditioning variables controlled for in the regression analysis and—to an even larger extent—on the underlying sample.