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Unformatted text preview: Michael Maleta Econ 140B 3/2/11 Inherited Trust and Growth by Yann Algan and Pierre Cabuc Yann Algan and Pierre Cabuc, in their paper Inherited Trust and Growth, seek to uncover the causal effect of trust on economic development by focusing on the inherited component of trust and its time variation. First, they used microeconomic analysis of trust that U.S. descendants have inherited from ancestors who immigrated from different countries at different times to evaluate the changes in inherited trust from separate countries over time. Then, they use these time varying measures in a macroeconomic analysis of how inherited trust can be an indicator of income per capita in the country of origin. As part of the received knowledge for the paper Yann Algan and Pierre Cabuc cite Banfield (1958), Coleman (1988), and Gambetta (1988), as well as Putnam, Leonardi, and Nanetti (1993) for their analysis of the impact of social capital, including trust, has on various economic outcomes. Algan and Cabuc also cite Gusio, Sapienza, and Zingales (2006) for showing that the level of trust of U.S. immigrants is affected by country of origin and highly correlated with trust in their home countries. This paper combines these ideas by recognizing that a component of trust can be inherited, but that trust can evolve over long periods. The originality of the paper is to use data to identify the time variation in beliefs of trustworthiness, and study the relationship between this and economic growth. Algan and Cabuc use data from the General Social Survey Database (GSS) and the World Values Survey (WVS) to measure the trust of the individuals. Economic performance is measured by income per capita in 1990 US Dollars, which is taken from the Maddison database. The countries of origin included is the GSS survey were: Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, India, Ireland, Italy, Mexico, Netherlands, Norway, Portugal, Poland, Russia, Spain, Sweden, Switzerland, United Kingdom, and Yugoslavia, as well as African countries which are consolidated into one category. For identification strategies, Algan and Cabuc use the model Y ct = + 1 S ct + 2 X ct + F c +F t + , where Y ct is the income per capita of country c at time t. S ct is the country average of trust of individuals who live in country c at time t (conditional on individual characteristics such as age, gender, education, etc.). X ct represents time varying characteristics of the country. These would include past economic development, change in political environment, and social norms like religion. F c and F t are country and time fixed effects, respectively. ct denotes the error term in country c and at time t. The problem with this model is that S ct will be correlated with the unobserved error term, ct . To solve this problem, Algan and Cabuc devise the following model to explain how trust is determined: S ct = + 1 S ct 1 + 2...
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This note was uploaded on 09/04/2011 for the course ECON 140b taught by Professor Staff during the Winter '08 term at UCSB.
- Winter '08