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Culture, Institutions and the Wealth of Nations

50 Pages Posted: 26 Sep 2010  

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Gérard Roland

University of California, Berkeley - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: September 25, 2010

Abstract

We construct an endogenous growth model that includes a cultural variable along the dimension of individualism-collectivism. The model predicts that more individualism leads to more innovation because of the social rewards associated with innovation in an individualist culture. This cultural effect may offset the negative effects of bad institutions on growth. Collectivism leads to efficiency gains relative to individualism, but these gains are static, unlike the dynamic effect of individualism on growth through innovation. Using genetic data as instruments for culture we provide strong evidence of a causal effect of individualism on income per worker and total factor productivity as well as on innovation. The baseline genetic markers we use are interpreted as proxies for cultural transmission but others have a direct effect on individualism and collectivism, in line with recent advances in biology and neuro-science. The effect of culture on long-run growth remains very robust even after controlling for the effect of institutions and other factors. We also provide evidence of a two-way causal effect between culture and institutions.

Keywords: Culture, Institutions, Growth

JEL Classification: O1,O3,O4,P5

Suggested Citation

Gorodnichenko, Yuriy and Roland, Gérard, Culture, Institutions and the Wealth of Nations (September 25, 2010). Available at SSRN: https://ssrn.com/abstract=1682575 or http://dx.doi.org/10.2139/ssrn.1682575

Yuriy Gorodnichenko (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Gérard Roland

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-642-4321 (Phone)
510-642-6615 (Fax)

Centre for Economic Policy Research (CEPR)

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London, EC1V 3PZ
United Kingdom

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