Cultural change and Economic development:1

Yann Algan2 and Pierre Cahuc3

First version: December 2006.This version: June 2008.

1We thank four anonymous referees, Daron Acemoglu, Philippe Aghion, Olivier Blanchard, EstherDuflo, Francis Kramarz, Guy Laroque, Thomas Philippon, Bob Putnam, Sebastien Roux and AndreiShleifer for their comments. We are especially grateful to Raquel Fernandez and Luigi Guiso who gave usvery helpful comments concerning the empirical strategy. We thank seminar audiences at CREST, MIT,Paris School of Economics and SED 2007.

2Sciences Po, OFCE. Email: yann.algan@sciences-po.fr. Corresponding author: Sciences Po, 27 rueSaint-Guillaume, 75007, France.

3Ecole Polythenique, CREST. cahuc@ensae.fr

Abstract

This paper develops a new empirical approach to uncovering the impact of cultural attitudeson economic development, with an emphasis on trust. We first show that inherited trust ofUS-immigrants is significantly influenced by the country of origin of their forebears and dependson the timing of arrival of their ancestors. This result allows us to use the inherited trustof US-immigrants as a time-varying measure of the historical evolution of trust in the sourcecountry. This strategy enables us to identify the specific impact of inherited trust on economicdevelopment relative to other traditional candidates, such as institutions and geography, bycontrolling for country fixed effects. We show that the level of trust transmistted from the sourcecountries has changed over the 20th century, and this cultural change explains a substantial partof the evolution of economic development in a set of countries from all over the world.

Keywords: Social capital, trust, economic development, growth.JEL codes: O10, F10, P10, N13.

1 Introduction

What are the fundamental causes of large differences in income per capita across countries?

Although there is still little consensus on the answers to this question, a growing literature

considers social attitudes, such as trust, as one of the main determinants of current economic

development. As stressed by Arrow (1972, p. 357) “Virtually every commercial transaction

has within itself an element of trust, certainly any transaction conducted over a period of

time. It can be plausibly argued that much of the economic backwardness in the world can

be explained by the lack of mutual confidence.” A prerequisite for the successful development of

market economies would be to depart from closed group interactions and to enlarge exchanges

to anonymous others. In this regard, trust and trustworthiness appear as the keystone for

successful economic development. This idea has a long tradition in political sciences since the

seminal works by Banfield (1958), Gambetta (1988), Coleman (1990), Greif (1993), Putnam

(1993, 2000) and Fukuyama (1995). This view has recently been restated by economists by

using cross-country correlations between income per capita and indicators of social attitudes

based on individual social surveys (see La Porta et al., 1997, Knack and Keefer, 1997, Tabellini,

2005), or by using micro studies on developing countries (Platteau, 2000).

However, the economic literature cannot explain easily the causal effect of trust on economic

development. The main reason is that previous studies identify the effect of trust through cross-

country or cross-regional comparisons displaying no time-variation. This makes it impossible

to control for specific invariant national or regional features which could codetermine both

trust and economic development. For example Tabellini (2005) shows the role of culture on

the income per capita of different regions of Europe by using historical variables (institutional

history and literacy rate) as an instrument for contemporaneous trust. Though this analysis

exploits variation in the historical variable between regions, which enables to control for country

fixed effect, it makes it impossible to control for region fixed effects. It is thus difficult to exclude

the possibility of some third factor, such as the geography of the region, that causes both the low

literacy rate in the region and the present low trust. This difficulty is common to the traditional

approach relying on time-invariant instruments for trust, such as hierarchical religions (La Porta

et al., 1997) or ethnic fractionalization (Knack and Keefer, 1997). This approach leaves open the

question of whether social attitudes do matter per se or if they pick up the more fundamental

influence of specific time invariant features such as the quality of institutions and the legal origins

(Acemoglu et al., 2001, Djankov et al.,2002, Hall and Jones, 1999), the extent of fractionalization

(Rodrick, 1999, Alesina et al., 2001) or geography (Sachs, 2003).

An alternative approach to identify the causal effect of trust on economic development would

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require exploiting the information contained in changes in trust across countries and over time.

What we need is to find a time-varying measure of trust. That would make it possible to ensure

that correlations between trust and economic performance are not determined by unobservable

time invariant country specific factors by including country fixed effects. The temporal dimension

of this problem is key since trust has been found to have dramatically changed over the past

decades. Its sharp decline in some countries is at the heart of a growing literature in sociology

and political science devoted to social attitudes.1 Surprisingly, this issue has been ignored so

far in the economic literature to explain the interplay between the dynamics of social capital

and economic growth. However the difficulty in performing such an exercise is that we lack of

long-time series on the evolution of trust. At best, we can go back to the 1970s and the 1980s

to have data on the trust variable in American social survey and cross-country social surveys

respectively.

The innovation of this paper is to provide an historical measure of the evolution of trust

over the century which allow to identify changes in trust across countries and over time. For

that purpose we use the change in the inherited trust of current US children of immigrants

as a measure of the historical trust in the home country. It is already a well-established fact

that parental trust is a good predictor of trust of children, as show in particular by Guiso,

Sapienza and Zingales (2006). In the spirit of the epidemiology literature (Fernandez, 2007,

2008), this phenomenon can be interpreted as the consequence of inherited social attitudes.

Thus by approximating the time at which parents’ of current US children arrived in the US, we

propose a measure of the trust levels prevailing in the source country at the time that the parent

left. We can thus provide a time-varying historical measure of trust prevailing in the source

countries a number of generations ago. We run this analysis by using the contemporary trust

answers of US-immigrants and information on their wave of immigration in the General Social

Survey. This method allows us to track back the evolution of social attitudes over the whole

20th century for a large set of countries all over the world, including Anglo-Saxon countries,

Continental European countries, Mediterranean European countries, Nordic countries, Eastern

European countries, India, Mexico and the African continent.

Looking at inherited social attitudes and their time-variation has many appealing features.

A first advantage of this measure is that subsequent changes in the source country will not affect

the trust that is transmitted to children since the parents of these children have left the home

country. This solves the contemporaneous co-determination problem between social attitudes

and income per capita. Second, as long as this stock is transmitted across generations, the

inherited part of trust of US-immigrants should be closely correlated with trust in the home

1Inglehart and Welzel (2005), Putnam (2000).

2

country of people belonging to the same cohorts. Our strategy thus deliver a relevant measure

for trust in the home country. Last but not least, by varying the age of current US-immigrants

and the number of generations ago their ancestors immigrated, we can obtain a time-varying

measure of trust in the source country. We thus get exogenous changes over time in social

attitudes, allowing us to isolate their specific impact on economic development relative to other

time invariant national features by including country fixed effect.

We show that the trust inherited from a set of 24 countries all over the world has changed over

the century and that the evolution of inherited social attitudes can explain a substantial part of

the change in economic development of the source country. We look at changes in inherited trust

and income per capita between different periods, like the periods 1910 and 2000 or 1935 and 2000.

These periods allow to focus on the level of trust inherited by the whole population at different

periods of time without any overlap between the populations at stake. Our estimates control

for country-fixed effect, past economic development and contemporaneous political institutions.

We find that change in inherited trust explain the substantial part of the change in income

per capita among the more developed countries, like Anglo-Saxon and Continental European

countries. Change in income per capita among developing countries is mainly explained by their

bad initial economic conditions, but inherited trust still plays a steady role. In addition we

show that the effect of the change in inherited trust on economic development remains steady

even when we control for changes in other social values such as attitudes towards work, family,

business or the government, or when including changes in religion and education.

Although our paper combines ideas about trust and economic development in an apparently

novel way, it follows a large literature on related topics. The first related literature analyzes

the impact of social capital, including generalized trust, on various economic outcome. Fol-

lowing Banfield (1958), Gambetta (1988) and Coleman (1990), Putnam (1993) reinvigorated

research on social capital by showing tremendous dispersion of levels of trust and social capital

across Italian regions as well as the ability of social capital measures to predict government

performance. Knack and Keefer (1997) and La Porta et al. (1997) are early empirical studies

showing that social capital predicts good economic outcomes in a cross-section of countries. Re-

cent studies have further advanced this area. Guizo, Sapienza and Zingales show how trust can

affect financial development (2004), economic exchanges and various economic outcomes such

as entrepreneurship (2006). Tabellini (2008) shows the relationship between historical variable,

contemporaneous trust and development in Europe. Tabellini (2007), Algan and Cahuc (2008a,b,

2009) and Bloom et al. (2007) analyzes the relationship between trust and institutions. The

second related literature is the transmission of cultural beliefs or values such as trust. Rice and

Feldman (1997) and Putnam (2000) show that the civic culture of US-immigrants is correlated

3

with civic culture in the home country. Guiso, Sapienza, and Zingales (2006) show that trust of

US-immigrants is affected by the country of origin of the ancestors and highly correlated with

trust in the home country. Tabellini (2007) and Guiso, Sapienza, and Zingales (2007a) present

new evidence of deep historical roots of modern variation in trust among regions of Europe and

Italy. Bisin and Verdier (2001), Tabellini (2008), and Guiso, Sapienza and Zingales (2007b)

focus on explicit models of cultural transmission of preferences and beliefs within families. In

the same vein, Fernandez (2007, 2008) and Fernandez and Fogli (2009) have shown that labor

participants of US-immigrant women is influenced by the country of origin of their mother, and

use the epidemiological approach to show the impact of culture on economic outcome. Fernan-

dez (2007) also uses attitudes towards women’s work in the home country as an instrument for

attitudes of US-immigrants.

2 Estimation strategy and data description

2.1 Estimation of inherited social attitudes

What is the impact of social attitudes on macroeconomic performance? To answer this question,

one has to deal with the issue of endogeneity at stake in the estimation of the following equation

Yct = α0 + α1Sct + α2Xct + Fc + Ft + εct (1)

where Yct stands for indicators of macroeconomic performance (including, in alternative speci-

fications, income per capita and its different components: capital stock per capita, employment

rate, human capital and total factor productivity) in country c at period t. The variable Sct

measures the country average of social attitudes of individuals who live in country c in period

t, conditional on their individual characteristics such as age, number of years of education, em-

ployment status and religious affiliation; Xct denotes a vector of average characteristics of the

population and past economic development of the economy; Fc stands for country fixed effects

capturing all other time invariant specific features such as legal origins or past institutions with

long-lasting effects; Ft stands for period fixed effects common to all countries; εct denotes an

error term. The inclusion of country fixed effects ensures that the correlation between economic

performance and attitudes is not driven by unobservable country time invariant specific factors.

The problem with equation (1) is that contemporaneous social attitudes are likely to be

correlated with the unobserved error term εct. For instance, individuals who live in a more

secure environment are likely to trust others more and to be more efficient. To tackle this issue,

we need to explain how social attitudes are determined. Studies by Bisin and Verdier (2001),

Bisin, Topa and Verdier (2004), Benabou and Tirole (2006) and Tabellini (2007) stress the role of

4

two main forces. A part of social attitudes is shaped by the contemporaneous environment and

another part is shaped by inherited attitudes from earlier generations. This suggests positing

the following model

Sct = γ0 + γ1Sct,−1 + γ2Xct +Φc +Φt + νct (2)

where Φc and Φt stand for country and time dummies respectively; Sct,−1 denotes the social

attitudes of the previous generations of people who live in period t; νct is an error term. In equa-

tion (2), it is assumed that current social attitudes of individuals of working age are determined

by all factors likely to influence economic performance and by the social attitudes of the previ-

ous generations. It should also be noticed that the assumption that social attitudes of the past

generations are excluded from the economic performance equation (1) can allow us to identify,

together with the assumption that εct ⊥ Sct,−1, the parameters of the system of equations (1)

and (2). In the benchmark estimation of the model, we consider two periods: 1935-1938 and

2000-2003.

There are two problems with the estimation of the system of equations (1) and (2).

First, as stressed by Tabellini (2005), we do not have any information on Sct,−1, since stan-

dardized cross-country databases on social attitudes of earlier generations are not available. To

cope with the lack of information on social attitudes of the previous generations, we proxy the

inherited attitudes of people living in country c by the social attitudes that Americans born in

the US inherited from forebears coming from country c. This strategy makes sense to the extent

that if social attitudes inherited from country c in the US are correlated with contemporane-

ous social attitudes in the corresponding home country c, it is because people whose forebears

originate from the same country share common past social attitudes. Therefore, the correlation

between social attitudes of people whose forebears were born in country c and social attitudes of

people currently living in country c should reflect the causal impact of such common past social

attitudes, independently of εct, the current shocks on macroeconomic performance in country c.

This strategy leads us to estimate a single equation of the form (1), where Sct is replaced by our

proxy of inherited attitudes. The coefficient associated with inherited attitudes then reflects the

correlation between inherited attitudes and outcome Y.

Second, even if we have a good proxy for inherited attitudes, the correlation between inherited

attitudes and contemporaneous economic outcomes corresponds to a causal impact from inher-

ited attitudes to contemporaneous outcomes only if these two variables are not co-determined

by common factors. For instance, it is possible that changes in inherited attitudes and outcomes

are driven by changes in institutions or in education. To deal with this issue, we take two

avenues. First, we account for changes in the quality of institutions and changes in education.

5

Second, we consider, as robusteness checks, long time lags between contemporaneous outcomes

and inherited attitudes (taking the attitudes inherited from the grand-parents) so that it be-

comes unlikely that changes in inherited attitudes are driven by changes in variables that could

directly impact both inherited attitudes and contemporaneous economic outcomes.

2.2 Data description

Economic performance is measured by income per capita expressed in 1990 US dollars. We use

the Maddison database which covers the period 1820-2003.

Social attitudes of individuals born in the United States are provided by the General Social

Survey database (GSS). This database covers the period 1972-2004 and provides information

on the birth place and the country of origin of the respondent’s forebears since 1977. The GSS

variable for the country of origin reads as follows: “From what countries or part of the world did

your ancestors come?”. The individual can report up to three countries of origin by order of

preference. Two respondents out of three report only one country. We select the GSS variable

ethnic that captures the country of origin to which the respondent feels the closest to make the

comparison between country of origin interpretable. We have a large number of observations

for at least 24 countries or continents. Origins cover almost all European countries: Austria,

Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Ireland, Italy,

Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, United Kingdom

and Yugoslavia. The GSS database reports information for Mexico and India. Additionally, the

GSS also reports a broad category for African origins. The number of observations is reported

in Table 15.

We measure the path of cultural transmission of social attitudes by using the waves of

immigration. Respondents are asked if they are born in the United States and how many of

their parents and grand-parents were born in the country. The question on parents birthplace is

scaled 0 if both parents are born in the US, 1 if only the mother is born in the US, and 2 if only

the respondent’s father is born in the country. The answer on grand-parents birthplace is scaled

from 0 to 4 indicating the number of grandparents born in the US. This information makes

it possible to disentangle four potential waves of immigrations: fourth-generation Americans

(all grand-parents born in the US), third-generation Americans (at least two grand-parents

immigrated to the US and all parents were born in the US), second-generation Americans (at

least one parent born abroad) and first-generation Americans.

Social attitudes are measured by the level of interpersonal trust. We use the following

question: “Generally speaking, would you say that most people can be trusted or that you need

to be very careful in dealing with people?”. The answers are given on a scale from 1 to 3, which

6

corresponds to “Most people can be trusted”, “Can’t be too careful”, “Depends”. We construct

a trust indicator equal to one if the respondent answers that people can be trusted and 0 if she

answers that one should be careful or it depends. We group together the two latter responses to

make a clear separation between high trusting individuals as opposed to moderate or low trusting

ones. This will also allow a mapping with the trust question in the World Values Survey (WVS)

which only provides two anwsers: “Most people can be trusted” and “Can’t be too careful”.

The results are hardly affected by the treatment of the answer “Depends” in the GSS. As shown

by Table 15, the share of anwsers “Depends” is almost nill for almost all country of origins. As

a matter of fact, we have run robustness checks when dropping the answers “Depends” or by

grouping this answer with the individuals trusting others, without any signficant change in the

results.

Social attitudes in the home country are measured by using theWorld Values Survey (WVS)

database. The WVS covers all the set of countries defined as potential country of origin in the

GSS database. For African countries, we use information on the West Coast with Senegal since

the slave trade mainly took place in this part of the continent. We also include the two additional

available African countries, Nigeria and Zimbabwe, for more recent waves of immigrations. The

trust question is the WVS has exactly the same wording as that of of the GSS: “Generally

speaking, would you say that most people can be trusted or that you need to be very careful in

dealing with people?”. The answers are given on a scale 1-0 for : “Most people can be trusted”

and “Can’t be too careful”. Table 15 provides the number of observation and the decomposition

of the trust question for the WVS. We select on the wave 2000 of the WVS since we will focus

on attitudes in the home country by that time. We use the wave 1995 to get information for

Switzerland and Norway.

3 Inherited trust of US-immigrants and trust in the home coun-try

3.1 Inherited trust

This section shows how to measure trust transmitted from the home country over the 20th

century by varying the age and the wave of immigration of US respondents to the question

about trust.

Inherited trust in 1935 and 2000

We start by focusing on the inherited trust in the two periods 1935-1938 and 2000-2003. We

measure inherited trust for these periods by using the transmission pattern described above.

We assume that all people alive in a period may influence the outcome of the period. We also

7

assume a generation gap of 25 years (we provide robustness checks below) so that we capture

the attitudes inherited from people who arrived in the US at least 25 years before the date of

the contemporaneous outcome. Therefore, inherited attitudes in 1935-1938 are those of second-

generation Americans born before 1910 (i.e. whose parents arrived for sure one generation before

1935), of third generation Americans born before 1935 and of fourth generation Americans born

before 1960. In the same way, inherited attitudes in 2000-2003 are those inherited by: second-

generation Americans born between 1910 and 1975, by third generation born after 1935 and

by fourth generation Americans born after 1960. Table 16 and Table 18 reports the sample

statistics for these two groups.

Table 1 reports the probit regression for inherited trust. To make the comparison meaningful,

we run only one regression and include dummies for the two periods 1935 and 2000. In addition to

country-of-ancestry dummies, we also control for age (age squared), sex, education, employment

status and income.2 Robustness checks also include the education of the parents (average years)

to control for the fact that the correlation between social attitudes and ethnic heritage might

transit through parents’ characteristics such as human capital rather than culture per se. All

estimations include year dummies to control for specific temporal shocks. All standard errors are

corrected for clustering at the country level. Trust inherited in 1935 by the Swedish-Americans

is used as the reference group.

Column 1 reports the inherited attitudes in 1935, relative to those inherited by Swedish-

Americans in 1935. Having forebears coming from a different country of origin than Sweden has

a statistically significant effect at the 1 percent level on inherited social attitudes from almost all

countries. For some cases like United Kingdom, the effect is even statistically more significant

than the one found for the cohort 2000. This result suggests that there is a strong persistence in

the transmission of social attitudes. Next the trust inherited in 1935 from Continental European

countries or from Anglo-Saxon countries tends to be higher than that inherited from Sweden.

The probability to trust others is 2.5 percent higher for French-Americans, 2.8 percent higher

for British-Americans and slightly higher for German-Americans. Inherited trust in 1935 is

also higher for some Eastern European country of origin such as Czech Republic or Hungary.

In contrast, inherited trust from Mediterranean countries, Latin American countries, Africa,

China, India is lower relatively to Swedish-Americans in 1935.

Column 2 reports the trust inherited in 2000 relatively to the trust inherited by Swedish-

Americans in 1935. A significant change in social attitudes between the two cohorts show up.

First, relatively to 1935, the Swedish American inherited higher trust in 2000. Second, inherited

trust from Continental European countries, and to a lesser extent from UK, have deteriorated

2The GSS also reports information on total wealth, but for too few households to get a representative sample.

8

during this period. The inherited trust in 2000 with French or German ancestor is 5.5 percent

and 2.2 percent lower relatively to the Swedish-Americans in 1935. Inherited trust decreased

even more among the immigrants from Eastern European countries, Mediterranean countries,

Asia and Africa. In contrast, inherited trust increased in 2000 for individuals with Nordic

ancestors. The effect of other individual characteristics are reported in Table 2. As expected,

trust increases with education, with the education of the mother, with the level of income, with

age, and the fact of being employed rather than unemployed.

Explaining the changes in inherited trust within the different countries is beyond the scope

of our paper. The set of potential candidates is quite wide. One might first think about the

role of shocks such as World War II. The ancestors of the current US respondents are likely

to have undergone very different national crises. The ancestors for the periods 1910 and 1935

have mainly migrated before the two World Wars. The social attitudes of immigrants from

countries deeply involved in these wars, such as France or Germany, have thus deteriorated

between these two cohorts compared to descendants from Sweden, since this latter country is

one of the few European countries which was not affected by the two wars. This finding would

be consistent with those obtained by Alesina and Ferrara (2002) who show that a history of

traumatic experience is associated with low trust.

Other potential explanations might be linked to institutions and initial economic conditions.

Sweden was much poorer than other European countries at the end of the 19th century and mass

emigration to America became the only way to prevent famine and rebellion: over 1 percent of

the population emigrated annually during the 1880s. Besides, Sweden was marked in the early

1900s by a world record for days lost in labor disputes and strong class conflict. This suggests

a low level of generalized trust. But the leaders ultimately reached a agreement that ended

the labor conflicts and led to the creation of the Swedish welfare state. The same holds true

for Denmark at the end of the 19th century. In the same way, Putnam (1993, 2001), Tabellini

(2007) and Aghion et al. (2008) show that some political and economic institutions could erode

progressively social capital. We do not explore here all these different explanations. Actually,

such an investigation would require knowing exactly when the respondent’s ancestors came to

the United States to identify whether or not the ancestors witnessed major national changes in

the home country. The GSS database does not provide such information. But the value-added

of our empirical strategy is to cope with this issue by relying on exogenous changes in social

attitudes between different periods of immigration, capturing exogenous variations in the timing

of arrival of the parents.

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3.2 Correlation between inherited trust and trust in the home country

We measure to what extent inherited social attitudes of Americans capture the social attitudes

in the home county. We follow the “epidemiological” approach (see Fernandez, 2007) used,

among others, by Carroll, Rhee, and Rhee (1994), Fernández and Fogli (2006a,b) and Guiso,

Sapienza and Zingales (2006). If there is cultural transmission of trust across generations, we

should find a significant correlation between inherited trust in 2000 of US-immigrants and trust

in their country of origin in 2000. Besides, if trust has evolved in the country of origin over the

century, the correlation between the trust transmitted in the first part of the 20th century and

contemporaneous trust in the country should be much weaker. Naturally an alternative inter-

pretation of a weak correlation would be a convergence of inherited trust as the time spent if the

host country increases. Yet the previous section has suggested that this alternative explanation

is unlikely, to the extent that the impact of the country of origin on inherited trust of third

and fourth generations of US-immigrants is still statistically highly significant. We will provide

additional evidence on this issue in this section.

For consistency with the previous estimates on the GSS, we run exactly the same regression

on the question about trust but by replacing the average trust in the home country, provided

by the WVS 2000, for the country of ancestor fixed effect. We run the estimates on exactly the

same sample of country of origin and including the same controls.

Table 3 - Column 1 reports the results for the period 2000. The correlation between inherited

trust in the US and trust in the home country in 2000 turns out to be statistically significant at

the one percent level. Column 2 reports the result when we regress inherited trust in 1935 on

trust in the country of origin in 2000. The coefficient looses all its statistical power. This result

suggests that the level of trust transmitted in 1935 was different to that transmitted in 2000.

Column 3 reports the result when we focus on the social attitudes inherited for the period 1910.

The lack of any statistical power of the correlation confirms the previous result.

Figures 1 and 2 provide a complementary picture for this result by reporting the correlation

between trust in the home country in 2000 and inherited trust for the period 2000 and 1935

respectively. Swedes and Swedish-immigrants of the corresponding periods are taken as the

reference group. We control for age, gender, education, income, employment status and religious

affiliation. The correlation between trust in the home country in 2000 and inherited trust in

2000 is fairly high. The only outlier is India and the R2 is 0.22. In contrast no clear correlation

pattern shows up in Figure 2 when we look at the cohort 1935. Most of the continental European

countries or Anglo-Saxon countries display higher inherited trust relative to Swedish-immigrants

for the period 1935, while trust in the home country is lagging behind trust in Sweden for the

10

Afri

Aut

Bg

Cd

Czr

Dk

Fin

Fra

Ger

Hg

India

IreIta

Mx

Nth

Nw

PolPtRus

Sp

Swd

SwitzUk

Youg

-.3-.2

-.10

.1Tr

ust i

n th

e ho

me

coun

try in

200

0

-.4 -.2 0 .2Inherited trust in 2000

R²=0.22

Figure 1: Correlation between trust in the home country in 2000 and inherited trust of US-immigrants for the period 2000. Source: WVS 2000 and GSS 1977-2004.

period 2000.

4 The effect of inherited trust on economic development

This section estimates the impact of inherited trust on economic development, with a focus on

the periods 1935 and 2000.

4.1 Cross-country correlations between inherited trust and income per capita

We start by looking at the cross-country correlation between inherited trust and income per

capita in the countries of origin. Figure 3 and 4 show the correlation in 1935 and in 2000.

The y-axis is the income gap relative to Sweden for each period. The x-axis reports inherited

trust measured by the marginal probit coefficient associated with the country of origin in 1935

and 2000 in the GSS. We run these regressions separately for each period, taking the Swedish-

Americans in 1935 and 2000 as the reference group.

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Afri

Aut

Bg

Cd

Czr

Dk

Fin

Fra

Ger

Hg

India

IreIta

Mx

Nth

Nw

PolPt Rus

Sp

Swd

SwitzUk

Youg

-.3-.2

-.10

.1Tr

ust i

n th

e ho

me

coun

try in

200

0

-.3 -.2 -.1 0 .1 .2Inherited trust in 1935

R²=0.06

Figure 2: Correlation between trust in the home country in 2000 and inherited trust of US-immigrants for the period 1935. Source: WVS 2000 and GSS 1977-2004.

12

Figure 3 shows that the cross-country correlation between inherited trust and income per

capita in 1935 is positive and steady, the R2 is 0.33. Most continental European countries,

Nordic countries and UK show both higher or equal level of inherited trust and higher income

per capita than Sweden. Mediterranean countries, India, and Africa were already lagging behind

Sweden. The only outlier is Yugoslavia, displaying much higher level of inherited trust relatively

to Sweden in 1935. The coefficient of determination is equal 0.58 without Yugoslavia, and 0.36

when excluding also Africa and India. Figure 4 shows that the same steady relationship holds

for inherited trust and income per capita in 2000. More than two-third of the cross-country

heterogeneity in income per capita relative to Sweden is associated with differences in inherited

trust. When Africa and India are excluded, the coefficient of determination is still 0.47.

Table 5 reports the corresponding OLS regression. Column 1 reports the bottom down regres-

sion without any controls. The correlation between inherited trust and income per capita is sta-

tistically significant at the one percent level and economically sizeable. Inherited trust explains

more than one-third of the cross-country heterogeneity in economic development (R2=0.38).

Columns 2-3 control for the economic and institutional environment. The initial environment

in the home country at the time immigration took place could codetermine both the current

income per capita in the home country and the inherited trust of US immigrants’ children.

Column 2 includes initial income per capita in 1870 and 1930 by using Maddison database.

Initial economic development lowers by half the correlation between inherited trust and income

per capita. But the correlation is still statistically significant at the one percent level, and the

impact is economically sizeable as discussed below.

Column 3 adds contemporaneous political institutions using the synthetic variable Polity2

from the Polity IV data set. This variable is originally scaled between -10 and 10. Higher values

correspond to more democratic political institutions. Since all variables in our regression are

measured relatively to Sweden, we rescale the polity2 variable between 0 and 20 and look at the

difference with Sweden. We take the average over the periods 1935-1938 and 2000-2004. Data

are missing for India. The correlation between inherited trust and income per capita is still

statistically significant at the 1 percent level.

Column 4 excludes Africa and India which appear as potential outliers in the previous graphs.

Inherited trust remains statistically significant at the 1 percent level and the effect is of the same

order of magnitude.

13

Afri

Aut

Bg

Cd

Czr

Dk

Fin

FraGer

Hg

India

IreIta

Mx

Nth

Nw

PolPt Rus

Sp

Swd

Switz

Uk

Youg

-400

0-2

000

020

00In

com

e pe

r cap

ita re

lativ

e to

Sw

eden

in 1

935

-.3 -.2 -.1 0 .1 .2Inherited trust in 1935

R²=0.33

Figure 3: Correlation between income per capita and inherited trust in 1935, relative to Sweden.Sources: Maddison database and GSS 1977-2004.

14

Afri

Aut Bg

Cd

Czr

Dk

Fin

Fra

Ger

Hg

India

Ire

Ita

Mx

Nth

Nw

Pol

Pt

Rus

Sp

SwdSwitz

Uk

Youg

-200

00-1

5000

-100

00-5

000

050

00In

com

e pe

r cap

ita re

lativ

e to

Sw

eden

in 2

000

-.4 -.3 -.2 -.1 0 .1Inherited trust in 2000

R²=0.64

Figure 4: Correlation between income per capita and inherited trust in 2000, relative to Sweden.Sources: Maddison database and GSS 1977-2004.

15

4.2 Changes in inherited trust and changes in income per capita

We turn to the correlation between changes in inherited attitudes and changes in economic

development across time. Figure 5 reports a scatterplot of the changes in income per capita

between 2000 and 1935 on the changes in inherited trust between the same period. Changes in

income per capita is measured as the log of the ratio of income per capita at the two dates. To

ease the interpretation, inherited trust is calculated as the average of trust by country of origin

in the GSS instead of measuring inherited trust relatively to Sweden. The correlation between

changes in income per capita and changes in inherited trust is positive and steady.

Table 6 reports the within effect of inherited trust on economic development controlling for

country fixed effects. Column 1 reports the bottom down estimates without additional control.

Change in inherited trust is strongly correlated with change in income per capita. Column 2

controls for change in initial income per capita. The coefficient associated to inherited trust is

lowered but still significant at the one percent level. Column 3 and Column 4 checks for potential

outliers by excluding Africa or Nordic countries (Denmark, Finland, Norway). Column 5 controls

for political institutions. Column 6 report the results using an alternative measure of income per

capita in 1935 and 2003. To smooth out short-run fluctuations, we calculate income per capita

as a ten years average 1928-1938 and 1994-2004. For each specification, the impact of change in

inherited trust on change in income per capita is significant at the 1 or 5 percent level.

The effect of social attitudes is also economically sizeable. Figure 6 displays the change

in GDP per capita in period 2000-2003 that countries would have experienced if the level of

inherited trust in a given country had been the same as that inherited from Sweden. This

analysis is based on the fully-fledge estimates reported in Table 6 - Column 5 when lagged value

of GDP per capita and contemporaneous political environment are controlled for. GDP per

capita in 2000 would have been increased by more than 546 percent in Africa (not reported)

if the level of inherited trust had been the same as in Sweden. Africa and poor countries

are obviously extreme cases. It is well documented that these developing countries are lacking

of interpersonal trust. As Banfield (1958), Fafchamps (1996) or Platteau (2000) have argued,

traditional societies are characterized by pervasive intra-group trust. The functioning of markets

is drastically limited when trust is circumscribed to small groups. Figure 6 shows that inherited

trust has also a non negligible impact on GDP per capita in Eastern European countries and

Mexico. Income per capita would have increased by 64 percent in Russia, 61 percent in Mexico,

51 percent in Yugoslavia, and 25 percent in Hungary and Czech Republic, had these country

have inherited the same level of inherited trust than Sweden. The effect, if less important, is also

sizeable for more developped countries. Income per capita would have been up by 18.5 percent

16

in Italy, 13.2 percent in France, 10.9 percent in Germany and 8.7 percent in United Kingdom if

these countries had the same level of inherited trust than Sweden.

What is the impact of social attitudes relative to other economic and political factors. Eco-

nomic forces in place before 1935 and 2000 could have a key effect in the transition dynamics

and the convergence among countries. Our estimates control for the lagged income per capita

in the 1870s and the 1930s for explaining income per capita in 1935 and 2000. We can thus cal-

culate the predicted increase in income per capita if the countries were starting from the same

initial economic development as Sweden, assuming as given other time-invariant institutions,

social attitudes and political institutions. Figure 7 shows the predicted increase in income per

capita in 2000. Africa would have an income per capita up to 596 percent while Russia or

Mexico would have an income per capita 128.1 percent and 83.2 percent higher. But countries

which used to be more developped than Sweden, like United Kingdom or France, would have

experienced a drop in income per capita by 25.0 percent and 6.6 percent respectively. More

generally, initial economic factors explain for up to two third of the change in income per capita

in developing countries relative to Sweden, the remaining part being linked to a lack social at-

titudes. In constrast, changes in income per capita in developed countries, relative to Sweden,

are overwheminly explained by differences in social attitudes. Political institutions do not play

a significant role when social attitudes and initial economic development are controled for. The

decomposition of the factor shares in the change in income per capita are reported in Table ??.

5 Robustness checks

5.1 Different periods

We first check the robustness of the results by looking at different periods. In particular, we

propose a wider gap in the economic outcomes by focusing on income per capita in 1910 and

2000. These two periods are separated by the main major events of the 20th century, including

the two World Wars, the 1929 crisis, and the emergence of conflicting ideologies in the world.

Inherited trust in 1910

To what extent these changes in inherited trust capture a slow but steady evolution of social

attitudes over the century instead of being the product of two particular periods? The GSS

data allows us to answer this question by tracking back inherited social attitudes from the really

beginning of the 1900s. In particular we can focus on inherited attitudes in 1910. Inherited

attitudes can be estimated by following our simple strategy developed above. We still take a

17

Afri

Aut

Bg

Cd

Czr

Dk

Fin

Fra Ger

Hg

India

Ire

Ita

MxNth

Nw

Pol

Pt

RumRus

Sp

Swd

SwitzUkYoug

.51

1.5

22.

5ln

(Inco

me

per c

apita

200

0/In

com

e pe

r cap

ita 1

935)

-.2 -.1 0 .1 .2Inherited trust in 2000 - Inherited trust in 1935

R²=0.22

Figure 5: Correlation between change in income per capita and change in inherited trust between2000 and 1935. Sources: Maddison database and GSS 1977-2004.

18

0 200 400 600Variation in GDP per capita if same inherited trust as Sweden (%)

FinNw

SwitzDkBgSpCdNthAutIreUk

GerFraPtItaHgCzrPol

YougMx

RusAfri

Figure 6: Predicted variations in GDP per capita in period 2000-2003 if same level of inheritedsocial attitudes as Sweden, controlling for lagged GDP per capita, contemporaneous politicalenvironment and country-fixed effects

19

0 200 400 600Variation in GDP per capita if same initial economic development as Sweden (%)

SwitzUkNthDkBgCdFraGerNwAutIreItaFinSpCzrPtHgPolMx

RusYoug

Afri

Figure 7: Predicted variations in GDP per capita in period 2000-2003 if same initial GDP percapita in 1935 as Sweden, controlling for inherited social attitudes, contemporaneous politicalenvironment and country-fixed effects

20

generation gap of 25 years. We thus focus on inherited attitudes of second generation individuals

born before 1885, third-generation born before 1910, and fourth generation born before 1935.

Inherited attitudes in 2000 are similar to that estimated in the previous section. The sample

of these two populations are reported in Table 17. We only select country of origin with more

than 20 observations. This leads to work with a smaller sample of 15 countries for each period.

Inherited trust is measured by running probit estimates on the populations 1910 and 2000 and

by controlling for age, education, gender, income, employment and religion. Inherited attitudes

of Swedish-Americans in 1910 are taken as the reference group. The coefficients are reported in

table 7 and standard errors are clustered at the country level. Figure 8 reports the marginal

effects associated with the country of origin dummies. The gap in inherited trust between the

periods 1910 and 2000 is even sharper than the one previously found between the periods 1935

and 2000. Among the descendants of early immigrants, the level of trust inherited from France,

Germany and United Kingdom, was much higher than that transmitted from Sweden in 1910.

Inherited trust from France and UK were 8.8 percent and 9.4 percent higher relative to Swedish-

immigrants. The only country of origins from which inherited trust in 1910 is lower than that of

Sweden are Africa, Italy and Spain. The effect of the country of origin associated with inherited

trust in 1910 is almost always statistically significant at the one percent level. Strikingly, British,

French or German immigrants have more significant difference in inherited trust, relative the

Swedish immigrants, in 1910 than in 2000.

Inherited trust and economic development between 1910 and 2000

Figure 9 reports the correlation between inherited trust and income per capita in 1910,

relative to Sweden. The correlation is positive and steady, the R2 is 0.56. European continental

countries like France, Germany and Netherlands, and Anglo-Saxon countries like UK, were more

economically advanced and with higher social attitudes than Sweden by that time. In contrast,

Mediterranean countries were already trailing behind both in terms of economic development

and cooperation.

Table 8 reports the regressions including both periods 1910 and 2000 at the cross-country

level. Column 1 shows the bottom down regression without additional controls. Column 2

includes lagged income per capita in 1870 and 1930. Column 3 adds contemporaneous values of

political institutions (averages over the period 1910-1913 and 2000-2003), all measured relative

to Sweden.

Table 9 reports the effect of change in inherited trust on change in income per capita between

1910 and 2000 by controlling for country fixed effects. Column 4 shows a statistically significant

and economically sizeable correlation between inherited trust and income. Column 5 includes

21

-.2 -.1 0 .1 .2 .3

2000

1910

UkSwitzSwd

SpPolNwNthItaIre

GerFraDk

CzrCdAfriUk

SwitzSwd

SpPolNwNthItaIre

GerFraDk

CzrCdAfri

Figure 8: Marginal effect of the country of origin on trust for the periods 1910 and 2000.Reference group: Swedish-Americans for the period 1910. GSS 1977-2004.

22

Afri

Cd

Czr

Dk

FraGer

Ire

Ita

Nth

PolSp

Swd

Switz

Uk

-200

0-1

000

010

0020

00In

com

e pe

r cap

ita re

lativ

e to

Sw

eden

in 1

910

-.2 -.1 0 .1 .2Inherited trust in 1910

R²=0.56

Figure 9: Correlation between income per capita and inherited trust in 1910, relative to Sweden.Sources: Maddison database and GSS 1977-2004.

the lagged value of income per capita. Column 6 includes contemporaneous political institutions.

Column 7 excludes Africa. For each specification the effect of inherited trust is significant at

the one percent level.

5.2 Longer generation gaps

An important exclusion restriction of the previous estimates is that inherited attitudes and

contemporaneous economic outcomes are not driven by other variables. This restriction might

not hold if the lag between the attitudes of the ancestors and the contemporary outcomes is

not long enough. As an example, let’s consider the likely impact of national shocks such as

World War II. We have suggested that the likely source of changes in trust in most European

countries like France or Germany, relatively to Sweden, come from WWII. Thus our previous

exclusion restriction requires that the changes in trust induced by the war on the parents of the

current population had no effect on outcome variables today other than through the effects of

23

changes in parental trust levels on their children’s trust levels. But it might be the case that the

war simultaneously directly affect institutions or investment levels that have persistent effect on

economic outcomes today.

A way to overcome this concern is to look at longer lag between the attitudes of the ancestors

and the contemporary outcomes. The previous estimates assumed a lag of at least one generation

equal to 25 years. We increase this lag to two generations, which implies a gap of 50 years. This

analysis is run for the periods 1935 and 2000. In the appendix, we increase the lag for three

generations, implying a gap of 75 years, but for a different period to get enough observations.

According to our estimation strategy, this leads us to select the following groups. To explain

the income per capita in 2000, we focus on the attitudes of second-generation US-immigrants

born before 1950, third-generation immigrants born between 1910 and 1975 and fourth genera-

tion born between 1935 and 1975. For the income per capita in 1935, we select second-generation

born before 1885, third generation born before 1910 and fourth generation born before 1935.

Inherited trust is still measured by running probit estimates controlling for age, education, gen-

der, income, employment and religion. Inherited attitudes of Swedish-Americans in 1935 are

taken as the reference group.

Figures 10 and 11 report the correlation between income per capita and inherited trust when

we impose a lag of at least 50 years between the social attitudes of the ancestor and income per

capita. The correlation remains steady, the coefficient of determination being 0.32 and 0.70 for

the periods 1935 and 2000 respectively.

Table 10 reports the corresponding OLS regressions. Column 1 reports the results for the

cross-country estimates. Column 2 shows the within estimates without any control. Column

3 includes the lagged income per capita and the current economic institution. The effect is

statistically significant at the one percent level in cross-country and time variation. The effect

of inherited trust remains statistically significant at the one percent level for all specifications.

The effect of inherited trust remains also economically sizeable, even if it becomes lower

compared to the previous estimates allowing a minimum lag of 25 years between inherited

attitudes and income per capita. Among developing countries like Mexico, Czech Republic or

Poland, the income per capita in 2000 would have increased by 34.3 percent, 21.4 percent and

22.1 percent respectively if these country had inherited the same level of inherited trust than

that of Sweden. The effect remains also significant for developed countries like Italy or France,

whose income per capita would have been up by 12.5 percent in Italy and 5 percent.

24

Afri

Cd

Dk

Fra

Ger

IreIta

Mx

Nth

Nw

Pol

Sp

Swd

Switz

Uk

-300

0-2

000

-100

00

1000

2000

Inco

me

per c

apita

rela

tive

to S

wed

en in

193

5

-.2 -.1 0 .1 .2 .3Inherited trust in 1935 - Lag 50 years

R²=0.32

Figure 10: Correlation between income per capita and inherited trust in 1935, relative to Sweden.Minimum 50 years lag between ancestors immigration wave and contemporaneous income percapita Sources: Maddison database and GSS 1977-2004.

25

Afri

Cd Dk

Fra

Ger

Ire

Ita

Mx

Nth

Nw

Pol

Sp

SwdSwitz

Uk

-200

00-1

5000

-100

00-5

000

050

00In

com

e pe

r cap

ita re

lativ

e to

Sw

eden

in 2

000

-.3 -.2 -.1 0 .1Inherited trust in 2000 - Lag 50 years

R²=0.70

Figure 11: Correlation between income per capita and inherited trust in 2000, relative to Sweden.Minimum 50 years lag between ancestors immigration wave and contemporaneous income percapita Sources: Maddison database and GSS 1977-2004.

26

5.3 Additional controls

This section discusses the robustness of the results with respect to additional controls. Previ-

ous regressions control for both time-invariant factors and time-varying political and economic

environments. But it might be the case that changes in inherited trust capture changes in more

general cultural attitudes or social norms. In this case, there are still components of inherited

trust that are correlated with the error term in the equation of the income per capita in the

home country because there are unobservable time-varying components of cultural attitudes. We

allow for this possibility by looking at other cultural attitudes that might matter for explaining

growth. We focus on the periods 1935 and 2000.

We first include measures of changes in cultural life by controlling for religion and education.

We measure the share of non-religious persons per country in the 1900s and 2000s by using

the Barro-McCleary database on religion. We also include the measure of fractionalization in

religious groups for this period. Besides we control for an historical measure of the education in

the country of origin by measuring primary school enrollment, taken from Benavot and Riddle

(1988). We use the country level in 1870-75 and 1935-1940, and express school enrolment relative

to Sweden.

Second, we look at the evolution of other inherited social attitudes toward work, family, the

government and markets. We measure these attitudes by still using the GSS and focusing on

the same periods 1935 and 2000 as in the main sections. We measure ethic of work and belief of

the respondent regarding important driving forces of success in life by using the GSS question:

“Some people say that people get ahead by their own hard work; others say that lucky breaks or

help from other people are more important”. The answers are given on a scale of 1 to 3, which

correspond to “Hard work most important”, “Hard work and luck equally important”, “Luck

most important”. We create a variable equal to 1 if the individual believes in hard work and to

0 otherwise. We also look at traditional family values regarding gender roles with the question

“Do you approve or disapprove of a married woman earning money in business or industry if

she has a husband capable of supporting her?”. The answer is a dummy variable equal to 1 if the

respondent approves and to 0 otherwise. The main question on government regulation in the

GSS reads “Government should do something to reduce income differences between rich and poor

or government should not concern itself with income differences”. The answers are scaled from

1 to 7, lower scores indicating preference for government intervention. We measure attitudes

toward business by using the following question: “Do you have a great deal of confidence, only

some confidence, or hardly any confidence at all in major companies”. We still measure inherited

attitudes relative to Swedish-American in 1935 and 2000 by running probit estimates on the two

27

periods and controlling for age, gender, education, income, employment status and religion.

Table 11 reports the effect of changes in inherited trust when we include other inherited

cultural attitudes. Column 1 includes inherited attitudes towards work, Column 2 includes in-

herited confidence in business, Column 3 includes inherited attitudes in favor of government

intervention to reduce inequality and Column 4 controls for inherited attitudes in favor of work-

ing woman. None of the correlations between these inherited attitudes and income per capita is

statistically significant. In contrast, changes in inherited trust remain statistically significant at

the 1 or 5 percent and the effect is still sizeable. Column 5 includes all the attitudes in a single

regression. Inherited trust becomes statistically significant at the 1 percent level. But none of

the other variables, including lagged income per capita, are statistically significant, suggesting

a potential problem of data limitation.

Table 12 reports the results when we control for indicators of social or cultural changes in the

home country. Column 1-3 control for changes in the shares of educated people of nonreligious

persons and of fractionalization respectively. All variables are calculated relative to Sweden.

Column 4 includes all the controls taken together. For each specification, the correlation between

changes in inherited trust and changes in income per capital remains statistically significant at

the 1 or 5 percent, and the coefficient is of the same order of magnitude.

6 Conclusion

This paper provides a new empirical strategy to uncover the causal effect of social attitudes

on economic development. We estimate the change in the level of trust that Americans have

inherited from their country of origin depending on their wave of immigration as a measure of

the historical trust in the source country. This strategy allows to identify an exogenous variation

in trust across countries and over time. The time-varying dimension of social attitudes enables

us to isolate the specific contribution of (inherited) trust on economic development relative to

other traditional candidates - institutions and geography - captured by the country fixed effects.

By using this methodology on a panel of countries from all over the world and over the whole

20th century, we find that trust has a significant causal impact on economic development.

A remaining question is the underlying reasons for changes in social attitudes. This paper

has used exogenous changes in inherited trust linked to the wave of immigrations to which

individuals belonged. We have shown that trust inherited by Americans from their country

of origin differs depending on the time of immigration of their parents in the United States.

One main reason for such changes in trust is likely to be national crisis such as the two World

Wars which have affected the different countries and the different generations differently. But

28

this research agenda might also be promising for studying the effect of changes in institutions

on the evolution of cooperative attitudes. This is a prerequisite for identifying institutions

and public policies which are conducive to cooperative attitudes and could thus favor economic

development.

29

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33

[57] Zak, P.J. and Knack, S. 2001, Trust and Growth, The Economic Journal, vol 111, 295-331.

34

A Appendix

Trust indicator

Table 13 reports the effect of inherited trust on income per capita when we use different measures of

the trust indicator. The trust variable in the GSS takes on three values: “Most people can be trusted”,

“Depends” and “Can’t be too carefull”. In the main section, we group together the answers “Depends”

and “Can’t be too carefull”. Table 13 - Column 1 reports the results using the original trust variable,

Trust1, equals 3 for “Most people can be trusted”, 2 for “Depends” and 1 for “Can’t be too carefull”. The

right hand side variable correspond to the coefficients of the country of origin, estimated with ordered

probit regression on the original trust variable at the individual level. Table 13 - Column 2 reports

the result when we use the trust dummy, Trust2, equals 1 for “Most people can be trusted” and 0 for

“Can’t be too carefull”. In this case, the answers “Depends” are dropped. The right hand side variable

corresponds to the coefficients of the country of origin, estimated with (marginal) probit regression on

the variable Trust2 at the individual level. Table 13 - Column 3 reports the results when we use the

trust dummy, Trust3, equals 1 for “Most people can be trusted” and “Depends” and 0 for “Can’t be too

carefull”. The right hand side variable corresponds to the coefficients of the country of origin, estimated

with (marginal) probit regression on the variable Trust3 at the individual level.

For all specifications, the impact of inherited trust on income per capita is statistically significant at

the 1 percent level. The coefficients associated with inherited trust for the variables trust2 and trust3 are

of the same order as the one found in the main section. The coefficient associated with inherited trust

for the variable trust1 is different and no longer interpretable in percentage variation since the variable

trust1 comes from ordered probit estimates.

Generation lags

This section assesses the impact of inherited attitudes and income per capita when we impose a

minimum lag of three generations, 75 years, between these two variables. To get enough observations

for inherited trust, this analysis requires to work on two closer periods for income per capita: 1950 and

2000. The income per capita in 1950 is measured as an average between 1949 and 1953. Following our

estimation strategy with a lag of 75 years for inherited attitudes, income per capita in 1950 is explained

by inherited attitudes of second-generation US-immigrants born before 1885, third-generation born be-

fore 1910 and fourth-generation born before 1935. Income per capita in 2000 is explained by inherited

attitudes of second-generation immigrants born before 1925 and after 1885, third-generation immigrants

born before 1950 and after 1910, and fourth-generation immigrants born before 1975 and after 1935 (to

35

avoid each time an overlap with inherited attitudes in 1950). We have more than 15 observations per

country of origin for the period 1950 for the following 17 countries or continents: Africa, Canada, Czech

Republic, Denmark, France, Germany, Ireland, Italy, Mexico, Netherlands, Norway, Poland, Portugal,

Spain, Sweden, Switzerland, and United Kingdom.

Table 14 reports the impact of inherited attitudes on income per capita in 1950 and 2000. Column 1

and 2 report the top down between and within regressions without additional controls. Column 3 shows

the within estimates controlling for lagged income per capita and political institutions in 1950 and 2000.

The impact of inherited attitudes on income per capita is statistically significant at the 1 percent level

for each specification.

36

Table 1: Change in Inherited trust between the 1930s and the 2000s

country of origin(1) Inherited trust

in 1935(2) Inherited trust

in 2000Coeff Std Error Coeff Std Error

Swedish ancestors - 1935 : ReferenceSweden .031*** (.006)Africa -.248*** (.004) -.258*** (.009)Austria .040*** (.004) .021** (.009)Canada -.019 (.002) .032** (.002)Czech Republic .014* (.001) -.187*** (.003)Denmark .042*** (.007) -.040*** (.009)Finland -.061*** (.002) .170*** (.003)France .025*** (.004) -.055*** (.010)Germany .008*** (.001) -.023*** (.009)Hungary .106*** (.005) .016 (.009)India -.100*** (.007) -.390*** (.014)Ireland .017*** (.004) -.033** (.012)Italy -.066*** (.012) -.095*** (.016)Netherlands -.064*** (.003) .018*** (.006)Norway .135*** (.001) .120*** (.005)Poland .012 (.013) -.059*** (.013)Portugal -.095*** (.010) .009 (.015)Russia -.068*** (.009) -.045*** (.007)United Kingdom .028 (.001) -.015* (.008)Pseudo-R2 .107Observations 11778General Social Survey. Marginal effects with robust standarderror ***:1%, **: 5%, *: 10%

37

Table 2: Marginal effect associated with individual characteristicsInherited trust

Controls Coeff Std ErrorAge -.008 (.009)Age2 .000 (.000)Men .038*** (.011)Education .038*** (.004)Education mother .007** (.003)Education father -.006** (.002)Income category .050*** (.019)Inactive ReferenceEmployed .041** (.019)Unemployed .073 (.078)No religion ReferenceCatholic .070** (.030)Protestant -.043 (.026)General Social Survey. Marginal effects with robuststandard error ***:1%, **: 5%, *: 10%

38

Table 3: Correlation between inherited trust and trust in the home country: GSS databaseInherited trustin 2000

Inherited trustin 1935

Trust in home countryWVS 2000

.480***

(.159).449(.294)

Age.005***

(.000).003***

(.000)

Men.031***

(.011).023***

(.011)

Education.039***

(.004).036***

(.002)

Income category.016***

(.003).015***

(.003)Inactive Reference

Employed.001(.024)

.001(.024)

Unemployed-.071***

(.038)-.028(.041)

Protestant-.019(.016)

.007(.027)

Catholic-.012(.028)

.076**

(.033)Observations 4633 7046R2 .063 .057General Social Survey. Marginal effects with robust standarderror. ***:1%, **: 5%, *: 10%

39

Table 4: Correlation between inherited trust and trust in the home country: Robustness checksInherited trust1st - 2nd generationPeriod 1935

Inherited trust4th generationPeriod 2000

Trust in home countryWVS 2000

.004(.116)

.511**

(.023)

Age.001(.003)

-.002(.003)

Men.111***

(.028).027(.017)

Education.039***

(.006).046(.007)

Income category.004(.002)

.013***

(.003)Inactive

Employed-.019(.072)

-.030(.034)

Unemployed-.062(.048)

Protestant.069(.080)

-.020(.029)

Catholic.004(.002)

-.037(.034)

Observations 723 2007R2 .061 .057

General Social Survey. Marginal effects with robust standarderror. ***:1%, **: 5%, *: 10%

Table 5: Inherited trust and Income per capita in 1935 and 2000: Cross-country regressions(1) (2) (3) (4)

Inherited trust40749.16***

(6200.94)22110.61***

(5889.43)23912.19***

( 7041.97)26969.98***

( 8116.34)

Initial income per capita1870 and 1930

3.62***

(.65)3.78***

( .67)3.58***

( .65)

Political institutions in1930 and 2000

-64.91( 83.20)

-36.55( 83.94)

OutliersAfrica, Indiaexcluded

Adj-R2 .467 .67 .62 .57Observations 48 48 46 44

40

Table 6: Inherited trust and Income per capita in 1935 and 2000: Time variation(1) (2) (3) (4) (5) (6)

Inherited trustin 1935 and 2000

41149.30***

(8701.3)23201.04***

(8242.58)34298.99**

( 13270.66)22986.6***

( 8751.21)31689.32***

( 8931.08)297( 8

Initial income percapita in1870 and 1930

2.88***

(.73)2.24**

(.883)2.96***

(.77)2.10**

(.79)

Politicy1930 and 2000

-227.72**

(103.77)-1(9

OutliersAfricaexcluded

Nordicexcluded

Country fixedeffects

Yes*** Yes*** Yes*** Yes*** Yes***

Adj-R2 .52 .70 .67 .72 .69Observations 48 48 46 42 46

Table 7: Change in Inherited trust between the 1910s and the 2000s

country of origin(1) Inherited trustPopulation 1910

(1) Inherited trustPopulation 2000

Coeff Std Error Coeff Std ErrorSwedish ancestors - 1910 : Reference

Sweden .031*** (.006)Africa -.138*** (.007) -.175*** (.038)Canada .133*** (.006) .127*** (.028)Czech Republic .115*** (.006) .049** (.022)Denmark .113*** (.003) .179*** (.028)France .088*** (.0042 -.001 (.035)Germany .054*** (.002) .047 (.032)Ireland .094*** (.003) .057 (.033)Italy -.042*** (.003) -.000 (.022)Netherlands .073*** (.005) .075** (.030)Norway .191*** (.001) .208*** (.028)Poland .067*** (.008) .057** (.024)Spain -.002 (.005) .143*** (.032)Switzerland .232*** (.003) .204*** (.033)United Kingdom .093*** (.001) .057 (.032)Pseudo-R2 .092Observations 7351

General Social Survey. Marginal effects with robust standarderror. ***:1%, **: 5%, *: 10%

41

Table 8: Inherited trust and Income per capita 1910-2000: between estimates(1) (2) (3)

Inherited trust39591.35***

(9005.7)23988.16**

(8750.35)23510.25**

( 9357.68)

Initial income per capita1870 and 1930

2.66***

(.78)1.62**

(.77)

Political constraints1910 and 2000

10914.09*

(5515.04)

Country fixed effect No No NoAdj-R2 .48 .64 .60Observations 30 30 30

Table 9: Inherited trust and Income per capita 1910-2000: within estimates(1) (2) (3)

Inherited trust36988.20***

(9818.15)25663.24***

(8580.27)14819.34**

(5891.909)

Initial income per capita1870 and 1930

4.00***

(1.27)4.30***

(1.23)

Political constraints1910 and 2000

301.92(224.92)

Country fixed effect Yes*** Yes*** Yes***

Adj-R2 .27 .54 .54Observations 30 30 30

Table 10: Inherited trust and Income per capita in 1935 and 2000: Lag of 50 years in inheritedtrust

(1) (2) (3)

Inherited trust29807.14***

(7961.38)36231.24***

(9604.92)25504.26***

( 7374.04)

Initial income per capita1870 and 1930

4.01***

(.90)

Political constraints1930 and 2000

-161.70(109.01)

Country dummies No Yes*** Yes***

Adj-R2 .31 .34 .70Observations 30 30 30

42

Table 11: Inherited trust and Economic development 1935-2000: Additional controls I(1) (2) (3) (4) (5)

Inherited trust26837.76***

(9455.76)31995.81**

(9148.59)31362.48**

( 11612.1)32040.61***

( 9202.87)33639.02*

( 17104.27

Initial income per capita1870 and 1930

1.993**

(.77)2.24**

(.95)2.02**

(.813)1.86*

(.95)1.51(1.06)

Political constraints1930 and 2000

-220.73**

(.73)-229.87**

(108.81)-219.49*

(114.97)-198.19(122.07)

-190.37(133.34)

Inherited attitudes towardswork and origins of success

14839.16(10760.52)

17104.27(11938.16

Inherited confidence inbusiness

-2980.48(16118.46)

-7638.94(17182.13

Inherited attitudes towardsgovernment intervention

142.24(122777.14)

-320.61(2914.93)

Inherited attitudes towardsgender division of work

3336.77(10484.9)

6319.01(10939.65)

Country fixed effects Yes*** Yes*** Yes*** Yes*** Yes***

Adj-R2 .70 .68 .67 .68 .66Observations 46 46 46 46 46

43

Table 12: Inherited trust and Economic development 1935-2000: Additional controls II(1) (2) (3) (4)

Inherited trust23520.25**

(9357.68)31995.81***

(9148.59)32265.39**

( 8765.55)31215.1***

( 7674.84)

Initial income per capita1870 and 1930

1.62**

(.77)2.24**

(.95)1.43(.88)

1.61**

(.73)

Political constraints1930 and 2000

-383.44**

(128.64)-229.87*

(109.80)-109.17(126.93)

-68.27(128.69)

Preschool enrollment in1870 and 1930

10914.09**

(5515.04)8261.16*

(4520.91)

Non-religious persons in1900 and 2000

-3145.13(7098.95)

-29102.94***

(9268.96)

Fractionalization of religionsin 1900 and 2000

-6190.92(4358.18)

-22405.04***

(5763.20)

Country fixed effects Yes*** Yes*** Yes*** Yes***

Adj-R2 .70 .68 .70 .83Observations 46 46 46 46

Table 13: Inherited trust and Income per capita in 1935 and 2000: Robustness checks for thetrust indicator

Income per capitaTrust1 Trust2 Trust3

Inherited trustin 1935 and 2000

9234.90***

(2449.64)24411.75***

(6688.01)25101.59**

( 3.25)

Initial income per capita1870 and 1930

3.01***

(1.00)3.28***

(.98)2.24***

(.96)

Political constraints1930 and 2000

-197. 63**

(91.08)-189. 58*

(91.99)-183. 19*

(90.15)Country fixed effects Yes*** Yes*** Yes***

Adj-R2 .71 .70 .71Observations 46 46 46Trust1 = 3 for trust, 2 for depends, 1 for no trustTrust2 = 1 for trust, 0 for no trust. Answers “Depends” deletedTrust3 = 1 for trust and depends, 0 for no trust

44

Table 14: Inherited trust and Income per capita in 1950 and 2000: Lag of 75 years in inheritedtrust

(1) (2) (3)

Inherited trust31319.76***

(8243.81)34200.61***

(9001.73)251995.65***

( 6824.92)

Initial income per capita1870 and 1930

3.64***

(.78)

Political constraints1950 and 2000

-25.74(91.14)

Country dummies No Yes*** Yes***

Adj-R2 .28 .46 .75Observations 34 34 34

Table 15: Samples for the GSS and WVSGeneral Social Survey World Values Survey

N“Trust mostother people”

“Can’t betoo careful”

“Depends”N

“Trust most other peop/ Can’t be too careful

Africa 3,705 .17 .79 .04 4,109 .14Austria 245 .44 .50 .06 1,520 .33Belgium 71 .51 .49 .0 1,823 .29Canada 787 .41 .55 .04 1,811 .37Czech Republic 535 .44 .49 .07 1,840 .25Denmark 314 .53 .43 .04 1,013 .66Finland 202 .52 .41 .07 988 .58France 859 .44 .50 .06 1,587 .21Germany 7,099 .44 .52 .04 2,019 .37Hungary 252 .43 .52 .02 985 .24India 166 .29 .60 .11 1,337 .38Ireland 4,859 .45 .50 .05 965 .36Italy 2,264 .38 .57 .05 1,950 .32Mexico 1,453 .25 .70 .05 1,124 .20Netherlands 670 .42 .54 .06 984 .60Norway 768 .57 .40 .03 1,101 .66Poland 1,228 .43 .52 .05 1,090 .18Portugal 117 .35 .59 .06 901 .12Rumania 69 .30 .70 .0 1,066 .10Russia 629 .47 .47 .06 2,480 .23Spain 395 .33 .63 .04 2,232 .36Sweden 679 .51 .44 .05 913 .67Switzerland 184 .54 .41 .05 1,103 .37United Kingdom 6,806 .50 .45 .05 884 .27Yugoslavia 162 .48 .47 .05 1,194 .16

45

Table 16: Observations for Inherited trust in 1935 and 2000: GSS database 1977-2004country of origin Inherited trust in 1935 Inherited trust in 2000Africa 1,721 680Austria 44 96Belgium 12 26Canada 239 184Czech Republic 115 213Denmark 110 77Finland 43 72France 334 195Germany 2,938 1,634Hungary 26 108India 10 11Ireland 2,061 1,046Italy 271 1,101Mexico 101 449Netherlands 263 158Norway 281 215Poland 190 554Portugal 13 42Russia 69 267Spain 82 87Sweden 229 217Switzerland 69 40United Kingdom 3,355 1,071Yugoslavia 18 87

46

Table 17: Observations for Inherited trust in 1910, 1935 and 2000: GSS database 1977-2004

country of origin Inherited trust in 1910Inherited trust in 1935Lag 50 years

Inherited trust in 2000Lag 100 years

N N NAfrica 565 569 1,830Canada 66 64 117Czech Republic 20 34 263Denmark 26 44 131France 107 124 401Germany 911 1,078 3,301Ireland 723 830 2,189Italy 22 37 1,247Mexico 24 26 523Netherlands 101 122 278Norway 56 90 360Poland 21 39 643Spain 21 22 145Sweden 41 73 331Switzerland 27 33 73United Kingdom 1,481 1,586 2,783

Table 18: Descriptive statistics: GSS database 1977-2004Variable Cohort 1910 Cohort 1935 Cohort 2000

Mean Std Mean Std Mean StdAge 66.71 10.98 54.44 16.76 36.15 .14Men .40 .49 .43 .49 .458 .49Education 11.95 3.28 12.81 3.03 13.48 2.59Income 9.43 2.89 10.07 2.65 10.44 2.53Inactive .66 .47 .40 .49 .24 .42Unemployed 0 0 .02 .14 .03 .18Employed .34 .47 .58 .49 .72 .44Catholic .15 .36 .20 .39 .39 .48Protestant .80 .39 .72 .44 .44 .49No religion .03 .18 .06 .24 .12 .32

47