More interpersonal trust can have a significant impact on growth in developing countries

http://www.eurekalert.org/pub_releases/2009-12/uog-mit121509.php

Public release date: 15-Dec-2009
Contact: Pelle Ahlerup
University of Gothenburg
More interpersonal trust can have a significant impact on growth in developing countries

It has been claimed that interpersonal trust can play more of a role in how an economy develops than capital, as the complexity of business transactions increases. In a recent thesis from the School of Business, Economics and Law at the University of Gothenburg, researcher Pelle Ahlerup demonstrates that there is reason to believe that interpersonal trust is more important in countries with a weak legal system, and that the quality of the legal system plays more of a role in societies where there is less trust between people.

"My research shows that trust between people can replace poorly functioning social institutions and vice versa," says Ahlerup, an economics researcher at the School of Business, Economics and Law. "Projects that aim to increase interpersonal trust can have a major impact in poor countries where investors and the general public do not have access to a reliable legal system. This also means that countries with low levels of trust between people have more to gain from improving the quality of their legal system and other social institutions."

Previous research has shown that countries where people have greater trust in each other generally perform better in a number of areas and have higher growth figures. Similar results have been shown for the importance of the legal system and other social institutions – countries with more reliable institutions generally have a higher standard of living.

----- (skipping)