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Aarhus School of Business, Aarhus University

Master of Science in International Economic Consulting

Master Thesis
The Effect of Social Trust and Economic Growth

Author: Lena Pfister
Academic Supervisor: Christian Bjørnskov
September 2010

Abstract:

In recent years, social trust has gained in importance within social science, especially in an economic growth context. The thesis examines social trust as a potential determinant of economic growth using a panel data set including 116 countries over a time span from 1950 until 2005. The findings suggest a strong association between social trust and economic growth and stay robust throughout a Jackknife exercise and an extreme bound analysis implying that it is unlikely that these results are driven by outliers or omitted variables. Reverse causation is ruled out by adopting an instrumental variable approach. Further findings suggest that the effect of social trust on economic performance depends, however, on the development level of the country. Moreover, the analysis provides further evidence that human capital and legal quality are indirect links through which social trust has an economic effect.
Finally, the thesis gives insight on the individual characteristics of the respondents that answer the trust question in the affirmative.

Index

I

Index

Index............................................................................................................................ I
Figures and tables ...................................................................................................... II
0 Introduction.............................................................................................................. 1
1 Overview of the literature......................................................................................... 3
1.1 Social Trust ....................................................................................................... 3
1.2 Social