In a novel experimental design, we investigate the impact of exogenous variation in economic growth and inequality on trusting behaviour. In addition to a control with uniform endowment, three treatments were implemented where the initial endowment is exogenously changed to produce inequality and three growth scenarios where average endowments increase (boom), decrease (recession) or remain unaltered (steady state). We find that aggregate trust and trustworthiness both decrease due to the induced heterogeneity in endowments. Also, trust (but not trustworthiness) decreases (increases) due to recessions (booms). The impact of inequality on trust is greatest in a recession and absent in a boom. These aggregate effects are driven mainly by the reactions of those who, after treatment, end up at the bottom of the endowment distribution. These findings are close in sign and in the order of magnitude to those reported in observational studies on the relationship between growth, inequality and trust.

An increasing volume of literature has shown that human development is related to economic institutions. But previous literature has not considered that the effects of economic institutions on human development are contingent on culture. In this study, we contend that the effects of economic freedom (as an indicator of economic institutions) on human development are dependent on generalized trust (as an indicator of culture). Using panel analysis on a sample of 29 OECD countries during 1990–2015, we find that generalized trust positively moderates the relationship between economic freedom and human development. The policy implication is that free market institutions foster human development only in high trust societies, not in low trust countries.