Does Terrorism Reduce Trust?: Empirical Evidence from Pakistan.

The literature on social capital and its economic implications shows that trust plays a significant role in the transaction of goods and services. However, few studies empirically investigate the evolution of trust over time. In this paper, we show how individuals' trust in Pakistan is affected by the persistent shock of terrorism. By matching the country representative survey data with district-level terrorist attacks, we observe that exposure to terrorism is associated with lower levels of interpersonal trust. This finding is robust to various robustness checks including different indicators of terrorism risk and trust. Furthermore, our results are also consistent with the IV identification strategy. [ABSTRACT FROM AUTHOR]