Trust, firm organization, and the pattern of comparative advantage

Interpersonal trust favors the delegation of decisions and tasks within firms, allowing the expansion of more productive units. We show that this interaction between trust and firm organization contributes to shaping the pattern of comparative advantage: high-trust regions and countries exhibit larger value-added and export shares in delegation-intensive industries relative to other industries. Consistent with the idea that trust allows firms to expand beyond a narrow circle of family members and friends, such effects are driven by an increase in average firm size, reflecting in turn a shift of the size distribution away from the smallest firms and toward the small-to-medium ones. According to our estimates, trust is no less relevant than human or physical capital, or institutions in shaping the pattern of comparative advantage.