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This study examines the effects of ethnic heterogeneity (diversity and segregation) and economic heterogeneity (deprivation and inequality) on trust in neighbours and on generalized trust. Three theoretical mechanisms behind these macro-micro-relationships are tested: the contact, threat and anomie mechanism. We use individual-level panel data: wave 1 and 2 from the Netherlands Longitudinal Life course Study (N=1567, native Dutch) and employ time-lag spatial error models. We show that ethnic diversity erodes trust in neighbours, whereas ethnic segregation diminishes generalized trust. Economic deprivation and inequality have a consistent negative impact on trust. Trust in neighbours spills over to generalized trust, not vice versa. Surprisingly, neighbourhood effects are hardly explained by the contact, threat and anomie mechanism. We further demonstrate that conclusions on neighbourhood effects depend on how the neighbourhood is conceptualized and that neighbourhood effects have been overestimated in cross-sectional analyses.