Martin Ljunge, Institutet för Näringslivsforskning (IFN)
The paper that will be presented finds significant private returns from trust. Individuals with high trust earn more. Greater trust leads to more income from earnings and self-employment, increases labor supply, reduces time unemployed and retired, and increases human capital.
Second generation immigrants in a broad set of European countries with ancestry from across the world are examined. Individuals are studied within country of birth using variation in inherited trust across ancestral countries.
The approach provides a clear direction of causality from trust to economic success, as outcomes of second generation immigrants do not determine average trust in the ancestral countries. The positive relationship between trust and income is remarkably robust to alternative ancestral influences.
The findings on private returns provide new evidence for mechanisms through which trust creates growth beyond its social return. The results suggest a constructive role for policy to build trust as means to individual success and economic integration.
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