Abstract
The study investigates the relationship between corruption and social capital (trust)
for a panel of 72 countries over the period 1984-2016. The study employs pooled
OLS, random effects, two-stage least squares and GMM estimation techniques for
empirical analysis. The main variable of interest “trust” enters significantly in all
models and suggests that more trusting countries are less likely to experience
corruption. Moreover, the results remain consistent even after the inclusion of
control variables such as GDP per capita, government size and import openness. In
general, regardless of the technique we apply and the model specification we
follow, trust sands the wheels of corruption. Furthermore, the study conducts
granger causality test to address the issue of reverse causation of variables and
provides a clear identification of the causal link from trust to corruption. Our study
identifies social capital as an important channel through which corruption can be
controlled. Therefore, human capital investments should concentrate on the
augmentation of social capital (trust) for the efficient control of corruption.