PARTICULARIZED AND GENERALIZED TRUST: THE INDIRECT RELATIONSHIP OF TRUST ON ECONOMIC DEVELOPMENT

Saqer Al-KhalifaClaremont Graduate UniversitySaqer.al-khalifa@cgu.edu

HOW IMPORTANT IS TRUST OR NETWORKS IN A SOCIETY?

DOES IT MATTER IF ONE SOCIETY HAS MORE TRUST THAN ANOTHER?

Question

DILEMMA

Institutional adjustments in developing world are withheld because of fear from political spillover.

Thus, rejection to such shifts is at the expense of the economic wellbeing.

NEOCLASSICAL GROWTH MODELS

Eventually growth to reach steady state because of diminishing returns to capital.

Blamed exogenous factors when predictions and explanations did not match.

Theorists argued technology and institutions continuously develop and prevent decrease in growth.

The growth models developed when critical non-economic factors were included.

THE PROCESS OF DEMOCRATIZATION Conflicting arguments with regards to the

relationship between democracy and economics.

Democracy & Autocracy: Two faces of a coin. Roving versus stationary bandit.

Mancur Olson (1993)

Politics in democracies is two edged sword.

Boix (1999), Bueno De Mesquita et al. (2005)

INSTITUTIONS

• North (1991): “Institutions are humanly devised constraints that structure political, economic, and social interaction.”

• Schedler et. al (1999): Accountability and Enforcement.

• North (1991): Cooperation is better achieved when individuals have information about each other.

Institutions

Societal Development?

TRUST

• Most work agree on the significance, but disagree on causal structure.

• Fukuyama (2000): Social capital is “the circle of people among whom cooperative norms are operative.”

• Uslaner and Brown (2003): “Greater equality and higher levels of trust are two pathways to participation.”

TRUST

• Uslaner (2004): Trust leads to better institutions.

• Wang and Gordon (2006): “We would think that whether trust could be taken as a causal factor can boil down to basically a definitional issue.”

• Deduced that trust is:• Particularized: Trusting people you know or know

something about. (Berggren and Jordahl)• Generalized: Trusting people in general.

PT PT

PT PT

PTPT

PTPT

PTPT

PT

PTPT PT

PT PT

GT

Generalized Trust versus Particularized Trust in a Heterogeneous Society

• Trust is two different variables. • What is the relationship between both types of Trust?

THEORY

Particularized and Generalized Trust are two distinct variables, one influences a change in the other.

Increased Particularized Trust creates the need for quality formal institutions to insure cooperation.

The relationship that Particularized Trust has with economic prosperity is mediated through formal institutions.

THEORY: SIMPLIFIED

Particularized Trust Generalized Trust

Particularized Trust Institutions

Institutions Economic Wellbeing

Institutions Generalized Trust

Tit for Tat versus Defection Strategy

Tit for Tat Strategist Defectors

Agents A B C D

A

 

3 5 5A 3 1 1A 3 1 1A 3 1 1A 3 1 1A 3 1 1B 3

 

5 5B 3 1 1B 3 1 1B 3 1 1B 3 1 1B 3 1 1C 0 0

 

1C 1 1 1C 1 1 1C 1 1 1C 1 1 1C 1 1 1D 0 0 1

 

D 1 1 1D 1 1 1D 1 1 1D 1 1 1D 1 1 1

Total Points 28 28 26 26

Cooperate Defect

Cooperate

Defect

3,3 0,5

0,5 1,1

X 6

PARALLEL ANALOGY

Conclusion: Rational individuals in a

society act selfish and

therefore cooperate to maximize self-gain.

THEORYIndividual Level

National Level

Particularized Trust

Institutions Generalized Trust

Particularized Trust

Institutions Economic Wellbeing

Generalized Trust

HYPOTHESIS

H1: An increase in Particularized Trust is associated with an Increase in Generalized Trust, mediated by institutions.

P.T. Institutions G.T.

HYPOTHESIS

H2: At both the individual and national level, an increase in Particularized leads to a positive change in formal institutions.

P.T. Institutions (Individual)

P.T. Institutions (National)

HYPOTHESIS

Particularized Trust Institutions GDP/Cap

H3: Institutions mediate a positive relationship between Particularized Trust and Economic Progress.

METHODOLOGY:CASUAL STEPS APPROACH

Introduced by Baron and Kenny (1986)

1. IV DV = Significant when mediator not included

2. IV Mediator = Significant3. MediatorDV = Significant when IV

included (given absolute value of IV here is less than absolute value in #1)

INDIVIDUAL/NATIONAL LEVEL:EQUATIONS

iiii CPTGT 10

ii PTI 10

iiii CIPTGT 310

EQ.1

EQ.2

EQ.3

PARTICULARIZED AND GENERALIZED TRUST IN UNITES STATES

Variable Model 1:Generalized

Trust

Model 2:Institution

s

Model 3:Generalize

d Trust

Probit OLS ProbitParticularized Trust 0.464*** 0.221*** 0.431***

(0.049) (0.022) (0.051)Income -0.027 --- -0.029

(0.027) --- (0.027)Education 0.135*** --- 0.144***

(0.035) --- (0.036)Organizational

Activity0.023 --- 0.019

(0.020) --- (0.020)Muslim 0.022 --- 0.087

(0.994) --- (1.044)Catholic -0.108 --- -0.115

(0.102) --- (0.104)Diversity 0.059*** --- 0.064***

(0.019) --- (0.019)Economic Well-Being 0.075*** --- 0.066***

(0.021) --- (0.022)Institutions --- --- 0.163***

--- --- (0.059)Constant -4.709*** -1.273*** -4.548***

(0.366) (0.139) (0.378)

N 1045 1194 1032R2 --- 0.077 ---

Percent Classified 69.00% --- 70.54%F/Chi2-Probabillity 0.000 0.000 0.000

Model 1 (Predicted

Probabilities)

Model 2 (Expected

Value)

Model 3 (Predicted

Probabilities

Min to

Mean

Mean to

Max

Min to

Mean

Mean to

Max

Min to

Mean

Mean to

Max

PT 0.375 0.324 0.919 0.404 0.369 0.305

Inst. --- --- --- --- 0.13 0.122

Substantive Effects

PARTICULARIZED AND GENERALIZED TRUST IN ITALY

Substantive Effects

Variable Model 1:Generalized

Trust

Model 2:Institutions

Model 3:Generalized

Trust

Probit OLS ProbitParticularized

Trust0.350*** 0.153*** 0.338***

(0.056) (0.019) (0.058)

Income 0.031 --- 0.035(0.025) --- (0.025)

Education 0.078** --- 0.073**(0.033) --- (0.033)

Organizational Activity

0.086*** --- 0.085***

(0.030) --- (0.031)

Catholic -0.540*** --- -0.587***(0.164) --- (0.167)

Diversity 0.113*** --- 0.114***(0.029) --- (0.029)

Economic Well-Being

0.037 --- 0.028

(0.033) --- (0.034)

Institutions --- --- 0.096--- --- (0.093)

Constant -3.696*** -0.884*** -3.527(0.461) (0.105) (0.481)

N 575 937 559R2 --- (0.066) ---

Percent Classified 72.35% --- 71.74%F/Chi2-

Probabillity0.000 0.000 0.000

Model 1 (Predicted

Probabilities)

Model 2 (Expected Value)

Model 3 (Predicted

Probabilities

Min to Mean

Mean to Max

Min to Mean

Mean to Max

Min to Mean

Mean to Max

PT 0.366 0.314 0.53 0.388 0.367 0.304

Institutions --- --- --- --- 0.084 0.071

NATIONAL LEVEL ANALYSIS

Variable Model 1:Generalized

Trust

Model 2:Institutions

Model 3:Generalized

TrustOLS OLS OLS

Particularized Trust 0.113** 1.910*** 0.099**

(0.041) (0.415) (0.045)

Education 1.06e09* --- 1.53e09**

(6.13e10) --- (6.32e10)

Economic Well-Being 0.090 --- 0.091***

(0.020) --- (0.025)

Organizational Activity -0.017 --- -0.019

(0.020) --- (0.018)

Heterogeneity -0.105 --- -0.112

(0.104) --- (0.098)

Muslim -0.003** --- -0.002***

(0.001) --- (0.001)

Catholic -0.002** --- -0.002***

(0.001) --- (0.001)

English --- 2.021*** ---

--- (0.634) ---

Institutions --- --- 0.009

--- --- (0.014)

Constant -0.769 -5.120*** -0.770**

(0.248) (2.386) (0.280)

N 37 42 34

R2 0.712 0.357 0.726

NATIONAL LEVEL ANALYSIS II

aCPTaaY 10

PTbbI 10

ii lCIlPTllY 310

Eq. 4

Eq. 5

Eq. 6

Variable

Model 1: GDP Per-

Capita

Model 2: Institutions

Model 3: GDP Per-

Capita

OLS OLS OLS

Particularized Trust 7,667.614*** 1.497*** 3,595.015**

  (1,896.449) (0.421) (1,798.374)

Education -1.019E-04** -1.669E-08 -3.467E-05

  (4.308E-05) (1.700E-08) (3.827E-05)

Economic Well-Being 4,826.483*** 0.966* 2,845.218*

  (1,455.508) (0.519) (1,551.241)

Organizational Activity 142.376 -0.056 -314.650

  (1,438.504) (0.456) (881.078)

Heterogeneity -8,140.305 -1.616 -4,536.908

  (5,521.408) (1.631) (4,360.550)

Muslim -120.546*** -0.020** -105.260**

  (45.422) (0.009) (47.940)

Catholic 8.300 -0.011 -0.086

  (42.900) (0.008) (34.023)

Generalized Trust --- --- -8,433.061

  --- --- (10,355.500)

Institutions --- --- 3,242.749***

  --- --- (818.966)

Constants-

57,217.167***

-6.712**-

40,529.314***

  (10,871.683) (2.619) (11,105.535)

N 37 34 34

R2 0.633 0.566 0.844

*p < .10; **p < .05; ***p < .01

ENDING REMARKS

1. Results falsify literature that argue Institutions effect Economic Development through ‘trust’.

2. Increase in trusting people you know or know something about is vital for economic development.

3. Shifts in domestic and foreign policy:1. Ex. Instead of establishing new institutions,

invest in increasing Particularized Trust in societies.

QUESTIONS?

Variable Variable Description

Generalized Trust

Dummy Variable: Value is based on the question: "Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people? [0=

"Can't be too careful" 1= "Most people can be trusted"]

Education level

1 = “Inadequately completed elementary school” 2 = “Completed (compulsory) elementary school” 3 = “Incomplete

secondary school: technical/vocational type/(Comp” 4 = “Complete secondary school: technical/vocational

type/Seconda” 5 = “Incomplete secondary: university-preparatory type/Secondary,” 6 = “Complete secondary:

university-preparatory type/Full seconda” 7 = “Some university without degree/Higher education– lower-leve” 8 = “University

with degree/Higher education – upper-level tertia”

Income level Each country has 10 scales of income: 1-10

Size of town1 = 2000 and less 2 = 2000-5000 3 = 5000-10000 4 = 10000-20000/10000-25000 5 = 20000-50000 6 = 50000-100000 7 =

100000-500000 8 = 500000 and more

Economic Freedom Index (EFI)

All of them are from Fraser Institute’s Economic Freedom Index table, for corresponded years

Because some surveys were done in the years which are one-year away from the year of Economic Freedom Index value. In

these cases, EFI would be assigned to the WVS data. For instance, 1999 WVS data for some countries would get 2000 EFI

index value.

Size of government (EFI1)

Legal system & Property Rights (EFI2)Sound money (EFI3)

Freedom to trade internationally (EFI4)

Regulation (EFI5)

GINI index

GDP per capita GDP per capita for corresponded years and countries Source: Penn World Table

Education attainmentPercent of population who have completed secondary school, over 25. Source: http://www.tfhe.net/report/downloads/Table

%20C.xlsEthnolinguistic Fractionalization Source: La Porta et al., 1999

HeterogeneityProxies: Income Inequality (Gini), Land Inequality (Gini),

Intensity of economic discrimination (Tedd Gurr), and Ethnic Homogeneity (Sullivan 1991)

Other Useful Variables

Schooling Barro and Lee (1993) Mean years for population aged 25 years and over

Formal Institutions (First Proxy)

The index of property rights introduced by Knack and Keefer (1995) based on data from the International Country Risk Guide (ICRG). This index is constructed from an equal weighting of five subjectively-scored indicators: quality of beauracracy, severity

of governmental corruption, the rule of law, risk of governmental repudiations of contracts, and risk of

expropriation of investments. Values are 0-50. Higher scored indicate more effective governmental institutions that protect

properties and enforce contracts. Formal Institutions

(Second Proxy) Contract Enforceability. From 0-4. (BERI)

Formal Institutions (Third Proxy)

Trancparency International's Corruption Perceptions Index. From 0-10

Formail Institutions (Forth Proxy)

Index of Investor Rights from the Center for International Financial Analysis and Research, Inc. Values reported in La Porta

et al (1998) ranging from 24 for Egypt to 83 for Sweden.

Particularized Trust

A variable that interacts two different questions in the WVS: D001 How much do you trust your family? 0-10 D042

Important for successful marriage: same ethnic background. Do you think it is very important, rather important, or not very important for a successful marriage? 1. very 2. rather 3. not

very.

Particularized Trust

Institutions Economic Wellbeing

Generalized Trust

?

Proposed Theory

PRESENTATION CONTENTS•Brief Literature ReviewNeoclassical Growth ModelDemocratization TheoryInstitutionalismTrust

• Theory: Particularized And Generalized Trust.

Theory OutlineIterated Prisoner’s DilemmaHypothesis

 

•Data AnalysisMethodologyIndividual Level Analysis

Empirical ResultsNational Level Analysis

Empirical Results• Conclusion And Discussion

Discussing ResultsSupported Case StudiesImplications, Limitations, & Extensions

 

GOALS

How to approach foreign and domestic policies that care for societal

development without threatening the stability of governance.

INSTITUTIONS AND PARTICULARIZED TRUST

• Douglass C. North: “Institutions are humanly devised constraints that structure political, economic, and social interaction.”

Institutions modifying Particularized Trust The evolution process towards Generalized Trust. Longer reach and increased mobility. Providing insurance, regulations, information, etc.

Raise the benefits of cooperative solutions or the cost of defection.

SOME SAY

Trust Institutions Economic Growth

Others Say

• Institutions Trust Economic Growth

I Say• Particularized Trust * Institutions Generalized Trust

Economic Growth