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Summary Everything you need to know about the articles of Culture and Institutions (general and economics track)

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Radboud Universiteit Nijmegen (RU)

This document provides everything you need to know about the articles of Culture and Institutions (general and economics track) to be well prepared for the exam. It includes things of importance that have been asked in previous exams and also conceptual models to visualise the causal mechanisms use...

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Geupload op 19 maart 2023
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Type Samenvatting

Gorodnichenko, Y., & Roland, G. 2016. Culture, institutions and the wealth of
nations. Review of Economics and Statistics.

This article argues that in the long-run a more individualistic culture leads to higher growth because
of a higher social status rewards associated with innovation in that culture.

Higher degree of individualism -> higher social status rewards through innovation -> higher economic
growth.

In short-run: Individualism lowers growth as a more collectivist approach leads to more coordination
and thus less transaction costs. This trade-off does not hold as the advantage of innovation is
dynamic whilst the advantage of coordination is static. Innovation influences the economic growth
through productivity, and coordination only influences economic output.

Individualism is a cultural trait that emphasizes personal freedom and achievement. It therefore
awards social status to personal accomplishments such as important discoveries, innovations, great
artistic or humanitarian achievements, and all actions that make an individual stand out. It really is
social status as people would still innovate if they could not take the financial credit for it because of
states expropriating it, the social reward cannot be taken away. And innovation in turn leads to
higher productivity.

To test this, they use three measures for individualism that are exogenous of economic outcomes,
they use these instruments and not Hofstede as they fear causality can flow two ways. Namely 1) the
frequency of collectivist associated genes (as parent do not only pass down their genes, but also their
culture), 2) blood distance to the UK and 3) historic prevalence index of pathogens
(ziekteverwekkers).

There could be other channels than through individualism by which blood types influence economic
performance (but since they use more instrumental variables they feel they mitigated that threat).
The UK is chosen for being the second most individualistic country. They use this instrument because
of the lack of observations of the other measurements.

Higher degrees of pathogen prevalence would be correlated with higher degree of collectivism. As
the defence mechanism was emphasizing tradition, putting stronger limits on individual behavior,
and showing less openness toward foreigners.

As measurement for economic growth, they looked at income per worker.

Oumer, A., Maseland, R., & Garretsen, H. (2020). Was de Montesquieu (only half)
right? Evidence for a stronger work ethic in cold climates. Journal of Economic
Behavior & Organization, 173, 256-269.
The article support de Montsquieu’s claim that colder climate creates informal norms that encourage
people to value work more, but, in contrast to his suggestion, the impact of this channel on economic
development appears very limited.

Colder climate -> informal institutions -> higher valuation of work ≠ higher economic development.

Colder climate – informal institutions (among work ethic)

Relation colder climates and work ethic:
- People need to produce more for the colder periods and need to invest more in housing for
the cold. Seasonality. -> higher valuation of work

,  This higher work ethic as informal institution can also influence formal institutions
like credit and property rights which in turn can influence economic outcome.
- The more privileged people in colder climates have a higher degree of individualism. Because
of the cold, people will be more indoor. Next to that, in colder climates, rainfall is more
predictable so less collective insurance mechanisms to protect individuals.

Relation warmer climates and work ethic:
- Heat drains energy to be more productive -> lower valuation of work
- Abundance in tropical environment makes it unnecessary to produce more than you can
consume. Also the surplus will spoil more quickly -> lower valuation of work
- There are more predators and pathogens hence people need to team up -> lower degree of
individualism

As measurement for work ethic, they looked at the influence of unemployment to happiness
(controlled for the drop in income). They use this indirect manner instead of asking them how they
value work as otherwise people might be inclined to say they like working more than they do (social
acceptability), compare themselves with others (benchmarking), diminishing market utility (someone
who works more values even working more less). As measurement for economic development, they
look at GDP per capita.

Since in colder climates, people valuate employment more than in warmer climates, being
unemployed leads to higher degree of unhappiness and depression in colder climates. (controlled for
the drop in income).

Colder climate ≠ higher economic development.
- Lower abundance of resources

Warmer climates ≠ higher economic development.
- Higher abundance of resources

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