Trust and Financial Development: Forms of Trust and Ethnic Fractionalization Matter

We examine the relationship between trust and financial development using detailed regional data in Turkey. distinguish different forms of (i.e., generalized, narrow, wide) investigate whether varying degrees generalized narrow trust, as well wide imply outcomes. Moreover, we assess how their combination affect presence ethnically fragmented populations. use instrumental variable (IV) estimations to address endogeneity issues potential reverse causality development. Our main results indicate that has a significantly positive impact on regions where is relatively high, find benefits from increasing trust. findings also highlight whereas leads more developed markets regions, plays stronger role less ones. Further, analyze proportion credit backed by stable funds such deposits. show an important mitigating adverse effects ethnic fractionalization have availability deposits or sources fund loans. On whole, our study highlights importance distinguishing combinations Generalized which focus most studies, not all-encompassing one-size-fits-all solution enhance economic performance.