Document Type

Article

Journal/Book Title/Conference

Economics Research Institute Study Paper

Volume

95

Issue

16

Publisher

Utah State University Department of Economics

Publication Date

1995

First Page

1

Last Page

31

Abstract

Growth theory emphasizes capital accumulation and technological change or, as Romer [1993] describes them, idea gaps and object gaps. This paper makes the case for a third and final crucial element: trust. Trust has both direct effects on the process of economic development, especially in facilitating increased exchange, and indirect effects through its influence on incentives to investment in human and physical capital (objects) and to the acquisition and processing of knowledge (ideas). Interpersonal trust is fundamental to economic development because irreversibilities, downside risk, and history-dependence are central features of most economic choice.


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