Income and Social Trust in Latin America

Abstract

How do economic conditions affect trust? In this paper, I analyze the effect of natural resource shocks on social trust in Latin American regions. To deal with the endogeneity between income and trust, I use an identification strategy that relies on the exogeneity of the international prices of commodities. I show that income shocks have a positive effect on social trust, a result that is robust to a number of checks. I present evidence that points to two mechanisms: increases in life satisfaction and a reduction in crime victimization. I do not find that inequality is moderating this effect nor that extractive commodities are detrimental to social trust. These results are consistent with the decline in social trust on the continent during the last decade of sluggish growth and economic turmoil.