مجله توسعه و سرمایه (Jul 2022)
Investigating the effect of trust on economic growth in developed and developing countries (Generalized Method of Moments (GMM))
Abstract
Objective: According to studies, one of the main determinants of economic growth and development is social capital, which has different components. One of the main components of social capital is "trust", which is an essential aspect of economic and social relations. Trust means as a positive expectation that the other party will not act opportunistically in their speech, actions and decisions. The result of some researches shows the difference between countries in terms of their industrial structure depends more on the level of their social capital than on the level of their developmental level, i.e., the degree of trust of individuals in one society to another and their participation in the formation of civic groups and associations. Emphasizing the importance of the role of trust in economic growth and to answer the question of whether the trust index in developing countries affects economic growth in a similar way to developed countries, the main purpose of this study is to show the trust index on economic growth in the two-selected groups of developed and developing countries in the period 2009-2019. Methods: To achieve this goal in this study, the trust index was first extracted from the World Value Survey. Then, to investigate the relationship between trust and innovation with economic growth in two selected groups of developed and developing countries, the two-stage Generalized Method of Moments (GMM) model has been used for dynamic panel data. Applying the GMM method has some advantages such as considering individual non homogeneous and more information, eliminating the biases in cross-sectional regressions. For a more detailed study of these indicators in addition to other effective control variables that are considered as factors affecting the economic growth and development of countries, are also added to the regression equation. Delayed variables of GDP at real price, fixed capital formation, human development index, consumer inflation rate, innovation index, number of labor force, economic freedom index and trade openness index along with confidence index have been added to the model. The statistical population of the present study includes 26 developing countries including: Islamic Republic of Iran, Belarus, Brazil, Colombia, Ecuador, Egypt, Guatemala, Indonesia, Iraq, Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Malaysia, Mexico, Nigeria, Pakistan, Peru, Philippines, Russia, Serbia, Thailand, Tunisia, Turkey, Ukraine and Vietnam and 25 developed countries including: Argentina, Australia, Canada, Chile, Cyprus, Estonia, Finland, France, Germany, Hong Kong, China, Hungary, Italy, Japan , Korea, Netherlands, New Zealand, Norway, Poland, Romania, Singapore, Slovenia, Spain, Sweden, Switzerland and the United States from 2009 to 2019 (statistics are available by year). These countries were grouped based on the Human Development Index so that countries with a human development index higher than 0/8 in the group of developed countries and less than 0/8 in the group of developing countries. Results: In both group of selected countries, the significance level of Sargan statistics is more than 0.05. At the 95% confidence level, the validity of the tools used in the estimation cannot be denied. So, the null hypothesis that the instruments of the disturbance are not correlated cannot be rejected. Therefore, it can be concluded that the instrumental variables used for estimation have the necessary validity. Also, the results show that all explanatory variables have unit root and the Kau test indicates a long-term relationship between variables and economic growth. According to the results, in countries with low levels of development, the variables related to the physical relations of production mainly affect economic growth. Also, the effect of the trust index on the economic growth of these countries is negative. In developed countries, as expected, the impact of the trust index on economic growth is positive. And for one percent increase in trust index, economic growth increases by 0.013 percent. The highest impact of the model variables on economic growth is related to the human development index, which will increase by 2.45% for one percent growth of this economic growth index. The positive impact of the lag of economic growth in both groups of developed and developing countries indicates that economic growth in these countries is subject to stable and long-term macroeconomic policies and requires forward-looking planning. According to theoretical expectations, by increasing the rate of fixed capital formation, labor force and economic freedom will lead to more economic growth in developed countries. Conclusion: According to the results, the trust index in the selected developed countries has a positive and significant effect on economic growth, but in the selected developing countries at a significant level of 90% has a negative effect on economic growth. This result shows that the developed countries have advantages due to the high level of trust in these countries: first, in result of trust, the communication and the transfer of information is done easily. Secondly, facilitating the transfer of information takes place in technological environments, which is one of the effective ways of trust category to solve the problem of information deficiency category of organizational learning. Finally, the problem of free riding is improved through group activities. But the inverse relationship between trust and economic growth in the selected developing countries can have two main reasons. First, the level of trust in economic policies in these countries is very low. Second, the issue of data quality is trust in these countries. Distrust, which is a form of formal and informal institutions in the economy that has always caused fear of partnership and cooperation between people, and people prefer distrust to avoid losses and limit their economic activities to the circle of friends and Their acquaintances do. One of policies that could develop trust level in developing countries is to increase institutional trust by improving the transparency and integrity of institutions. Another and even more important policy is related to educational programs in such a way that the main emphasis is shifted to the team working of students and strengthens cooperation between new generations. These policies are able to increase social capital and consequently public trust.
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