Abstract:

There is wide acceptance that social capital is important for economic outcomes, for instance through the role of institutions in economic development. However, there is only limited macroeconomic evidence about the channels through which social capital influences the economy. We test the role of trust as a measure of social capital operating as an enabling asset to increase Total Factor Productivity (TFP) growth. We find that trust has a significantly positive association with TFP growth, for a sample of 23 European countries from 2000-2016, controlling for a wide range of other potential contributory factors. Policymakers concerned about the slowdown in productivity growth since the mid-2000s should consider the role of trust or social capital.