Tolerance for Uncertainty and the Growth of Informationally Opaque Industries

Posted: 30 Jun 2009

See all articles by Rocco Huang

Rocco Huang

Michigan State University - Department of Finance; Wharton Financial Institutions Center

Date Written: June 26, 2009


Hofstede (1980)'s cross-country psychological survey of IBM employees finds that some countries (societies) are systematically less tolerant of uncertainty, while uncertainty-tolerance is shown by some theoretic models to be essential to the growth of emerging sectors about which less is known. This paper first uses Durnev, Morck, and Yeung (2004)'s methodology to identify these informationally opaque industries. The hypothesis is then made that countries characterized by high uncertainty aversion (measured by Hofstede's indicator, and two other alternative indicators) will grow disproportionately slower in industrial sectorswhere information is less available. Using the Rajan and Zingales (1998) "difference-in-differences" methodology, which is relatively free from the endogeneity problem, the study provides robust evidence of such an industrial growth pattern in 34 countries and 36 manufacturing industries. It also shows that national uncertainty aversion is not driven by underdevelopment of financial sector, inadaptability of civil law systems, lower level of economic or human capital development, labor market inflexibility, or any of many other institutional factors. The results remain robust when religious (Catholic vs. Protestant) composition is used as an instrumental variable for national uncertainty aversion. The international evidence presented helps explain why some countries are slower in embracing "new" (vs. traditional) industries.

Keywords: Growth, Empirics, Social norm, Information

JEL Classification: O4, D8, Z13

Suggested Citation

Huang, Rocco, Tolerance for Uncertainty and the Growth of Informationally Opaque Industries (June 26, 2009). Journal of Development Economics, Vol. 87, No. 2, 2008. Available at SSRN:

Rocco Huang (Contact Author)

Michigan State University - Department of Finance ( email )

315 Eppley Center
East Lansing, MI 48824-1122
United States


Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

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