Explanation 'higher Trust Leads to Higher Income - Management Assignment Help

Assignment Task

Q1?Conditional on other characteristics, there is a positive correlation between trust (as measured in the World Values Survey) and per capita income. This could be because higher trust leads to higher income, or because higher income leads to higher trust. Which of these two explanations is likely to be more important?

1. Background
The explanation 'higher trust leads to higher income' is likely to be more important.
There are countless discussions on the relationship between trust and per capita income, mainly through mathematical models that construct a relationship function, then quantify the analysis to obtain an accurate impact coefficient by using instrumental variables to address endogeneity. Algan & Cahuc (2010) draw on the inheritance of trust and use data on the trust of immigrants in the United States as an instrumental variable for trust in the country of origin, deriving the positive effect of trust on the per capita income. Brückner et al (2019) relied on the effect of oil prices on income and used oil prices as an instrumental variable for national income, deriving a positive relationship on trust for residents in Russia.
 

Logical error in the second explanation
There is no denying that per capita income has a positive relationship with trust, and in the trust game, people in high-income countries offer more than low-income countries (Berg et al., 1995). The use of trust as an indicator of development is also well documented, the state of Kerala in southern India uses the human well-being index as a basis for development, and trust between people, living in harmony, is an essential component of well-being (Gibson-Graham et al., 2013). As policymakers, they should pay attention to building people's social trust, and throughout the people-centered thinking, play a positive role in improving people's institutional trust and national cohesion through income enhancement. However, the positive relationship between income and trust as a basis for policy is logically flawed in its implementation effects. First, rising per capita income necessarily increases trust. Graafand and Lous (2019) shows that income inequality is negatively related to trust. Inequality creates dissatisfaction with the social reality and wariness of others. If the wealthy group drives the increase in per capita income, it may increase income disparity when the positive relationship between higher per capita income on trust is not significant and may even negatively impact. Second, from the perspective of the trust game. It remains to be proven whether the differences in money given by different income groups are due to differences in their trustworthiness or the differences in money's importance on participants. It is also an interesting social phenomenon that rural areas in China leave their doors unlocked at night without fear of burglars entering. In contrast, in urban areas, households are fitted with security doors. This is because of the difference in trust between societies of acquaintances (rural) and societies of strangers (urban) (Navarro-Carrillo et al., 2016). In summary, policies that use higher per capita income as an intermediate variable to increase trust may have little success and have a less significant positive effect on the country's development.
 

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