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How do high and low levels of social trust affect the long-run performance of poor economies?

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Poor countries with high levels of social trust are shown to experience a hump-shaped pattern of long-run growth. With social trust modeled as a human capital externality, a calibrated two-sector model (Lucas 2009) replicates the observed hump-shaped growth path. The simulation results imply that a hypothetical poor economy with a high level of social trust, when beginning at a relative income level of 10%, may need about 150 years to reach 50% of the income level of the leading countries. However, the process of catching up may only begin after 150 years of relative stagnation for a hypothetical poor country with a low level of social trust.
TidsskriftJournal of International Development
Sider (fra-til)3-21
Antal sider19
StatusUdgivet - 2019

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