DOES TRUST MATTER? AN EMPIRICAL INVESTIGATION INTO THE RELATIONSHIP BETWEEN TRUST AND CORRUPTION

Abstract

The study examines the relationship between social values measured as trust and corruption using the cross sectional data for a sample of 84 countries for the period 1984 to 2014. The study employs OLS as well as instrumental variable techniques for the estimation purposes while includes economic development, economic freedom and trade openness as control variables. Consistent estimates of social values are obtained with alternative estimation techniques confirming the negative relationship between social values and corruption. Additionally, the study finds that economic development and economic freedom have significant negative impact on corruption however, the study could not document any significant evidence for trade openness. The empirical findings of the study have important implications for policymakers while designing policies to curb corruption. The findings suggest that social values along with economic freedom are quite helpful in controlling corruption and therefore, social values should be focused in educational programs and in the planning of human capital investments along with traditional determinants of corruption.