Corporate stakeholders and trust

Abstract

To my knowledge, this is the first paper that investigates the links between trust, the institutional setting (in terms of employment protection legislation (EPL) and investor rights) and studies the impact of all three on economic performance. In line with the previous literature (e.g. Knack and Keefer, 1997, Zak and Knack, 2001), we find that trust has a positive impact on GDP per capita growth. Our novel results are twofold. First, we find that EPL and investor rights have a negative relationship and that both (although the latter to a lesser extent) are substitutes for trust. Second, all three variables have a positive effect on economic growth.