Trust and total factor productivity
28 April 2020
This working paper was produced by Kōtātā Insight for and with the support of the Productivity Commission. It explores what is known about the relationship between trust and total factor productivity. The aim is threefold:
- to summarise what is known from the empirical literature on the size of the relationship between trust and productivity;
- to articulate what is known about the causal mechanisms whereby trust is thought to affect productivity and growth; and
- to investigate the plausible magnitude of the impact trust on tfp in OECD countries.
The first two questions are addressed through a literature review focusing on empirical quantitative analyses of the relationship between trust and income, economic growth, or productivity. This review summarises what is known about the magnitude of the relationship between trust, incomes, growth, and productivity and then discusses the causal pathways associated with the impact of trust.
The third question makes use of data from the European Social Survey to estimate the size of coefficient for trust on tfp and illustrates what this implies for OECD countries via a counter-factual example where all OECD countries are assumed to have the same levels of interpersonal trust.