To Trust or not to Trust, That’s the Question: The Impact of General Trust on Household Income in Rural Vietnam

There is consensus that social capital, through social networks and other social interactions, has a clear influence on economic outcomes. Less consensus is paid on the impact of general trust. We developed a framework of multidimensional social capital reflecting a type of resource arising from social interactions, embedded in relationships or social structures, maintained through social connections and mobilized to support collective coordinated actions. General trust is proxied by two questions: "In general, do you believe that most people can be trusted?" and "In general, do you think one should not be overly cautious in dealing with others?" in the survey carried out in 4 provinces Quang Ninh, Hai Phong, Ha Nam, Nam Dinh and utilize the multi-level fixed effects regression to estimate the impact of general trust. Our empirical results show that general trust affects household income in two ways. On one hand, households that place excessive trust in the community, believing that most people can be trusted, face significant negative impacts (25.5%) on their income. Conversely, a trusting yet not overly lenient attitude has a positive effect (27.8%). Our results extend Kien and Minamoto’s (2021) findings. The impact of general trust in the form of believing that most people in the community are trustworthy is negative, implying that such general trust can be naïve and gullible, leading to erroneous decisions. On one hand, general trust facilitates decision-making and reduces transaction costs, thereby enhancing economic efficiency. As a characteristic of rural Vietnam, general trust in some cases manifests as leniency, a lack of principles, and carelessness rather than an effort to promote cooperation among parties. This misuse of social capital - considered a collective community resource - can lead to exploitation for wrongful purposes and erode social capital not only in this dimension but also in others.