On the Monotonically Increasing Effect of Trust on Chinese Household Wealth

This paper studies the relationship between trust and household wealth. Using cross-sectional data from the China Family Panel Studies, we find a monotonically positive effect of trust on household net wealth while controlling for economic, demographic, geographic, and psychological factors and correcting for endogeneity problems. Furthermore, we find that highly trusting individuals are less likely to be cheated in our sample. These results are in contrast with existing studies that establish a hump-shaped curve between trust and individual net worth. We attribute the difference to culture. Through more thorough analysis, we find that the positive effect of trust on wealth is mediated through participation in financial markets.