hello this is tyler cowen let's consider
today the role of trust in supporting
and promoting economic growth economic
suggests that societies with higher
levels of trust should also be wealthier
and have higher levels of economic
growth think about it every time you
trade with someone typically that trade
involves some measure of trust you trust
that the goods and services you are
receiving will be worthwhile or that you
trust the supplier will still be in
business say a year from now in case you
have some kind of problem when Trust is
high cooperation tends to be high it
tends to be higher in the workplace this
makes business is more efficient and it
makes it easier to build large
businesses when Trust is high you don't
have to spend all of your resources
protecting property rights to some
extent you are trusting other people to
not simply come along and take what you
have when Trust is high corruption tends
to be lower you can rely more upon the
quality of public sector officials and
public services and also capital markets
should work better when Trust is high
because borrowing and lending will be
easier and less costly because people in
general will expect others to be paying
them back let's look at a specific
empirical article on the connection
between trust and growth and this is
written by Paul Zack and Steven neck
this paper and a lot of the other
research in the area draws upon
something called the world value survey
this took place in many different
countries and basically the researchers
went around and they spoke to people and
they asked them what they thought of
these two statements first most people
can be trusted versus you can't be too
careful in dealing with people as you
would expect the more trusting countries
are more likely to support the response
most people can be trusted the country
which comes out highest on the trust
scale is Norway the very wealthy country
and also a very cooperative country
where rates of crime are quite low the
country of Cape Verde pulls in the
lowest score but it would be a mistake
to conclude that Cape Verde is the lease
trustworthy country in the world are
even close to it a lot of countries
simply aren't surveyed because it's too
violent there and they're simply not a
high enough level of trust for a
stranger to going around asking people
how much do you trust others in any case
snack and Zach take this data set and
they perform some statistics on it they
do what are called cross-country growth
regressions on the left-hand side of the
statistical equation is a country's
growth rate that's what we're trying to
explain on the right hand side we put a
number of variables that might
contribute to explaining that growth
rate in this paper these variables
include schooling investment the
starting point of a country in terms of
per capita income and also religion of
course these are not the only
possibilities the authors ran a much
greater number of possibilities for
variables on the right hand side but the
key thing we want to see is that when we
put in some plausible variables on the
right-hand side is the variable for
trust going to make a difference for the
growth rate in fact in the paper it
turns out that trust really does make a
difference what Zach and knack find is
growth rises by nearly one percentage
point on average for each 15 percentage
point increase in trust so to make this
a little more concrete if the nation of
Panama had about as much trust in it as
the nation of Austria according to their
results in Panama economic growth would
be about one percentage point higher if
you'd like to see the relationship
between trust and economic growth rates
in the form of a picture here's figure 1
in their paper you can see also that the
country with the highest level of trust
it's out here it's Norway the country
with the highest level of economic
growth is South Korea and again in this
picture you're seeing a positive
relationship between trust and economic
growth plotted in this graph you might
wonder in this paper what is it that is
determining trust well in their data set
they find trust is positively correlated
both formal and informal institutions
and also positively correlated with
wages that makes good intuitive sense
trust decreases with population
heterogeneity and somewhat oddly trust
goes down somewhat with increases in
wealth other research has found that
very often Trust is inherited from the
culture of one's forefathers that is if
your ancestors came say from Norway and
you are Norwegian American your degree
of trusting this is likely to be
correlated with the level of trust in
Norway in other words trust somehow
persists in a culture and it's something
you pick up in part from your parents
even if you're living in a different
country altogether you might also wonder
what are the channels of trust that is
how does trust actually operate to
increase the growth rate and bring about
prosperity it's not automatic you don't
simply wake up one day and you trust
each other and then more wealth falls
out of the sky how does it work well
there's a good paper on this topic how
does social trust affect economic growth
and you can google to that online this
paper finds two major channels for how
trust boosts economic growth the first
is through quality of governance in the
rule of law that is the more trusting
societies have governments which work
better and they're more likely to apply
their laws in a fair and just manner and
that will boost economic productivity
and wealth another channel for how trust
boosts the growth rate is through
schooling societies with higher levels
of trust invest more in schooling this
raises the value of human capital and
productivity and it boosts the growth
rate I would stress that throughout the
videos in the series we see numerous
examples of just how much trust matters
and how and why trust matters trust
seems to matter for better outcomes in
education better outcomes in health care
better outcomes in water policy and
lower levels of corruption all of these
will boost economic growth so the
evidence that trust matters it comes in
part from these macro economic studies
as we've looked at but it will also come
from a lot of very finely grain
and small-scale micro investigations
which you'll be seeing more of as we
proceed if you'd like to read more on
this topic I suggest starting by simply
googling trust and growth and looking at
the papers which come up