A comparison of culture vs. institutions: Impacts on economic growth and development

Much has been written in recent years about the role of institutions on economic growth and development.  The trouble is that institutions themselves are affected by past levels of economic development.  Thus the endogenous nature of the variables in question, prevent a clear cut answer from emerging.  To provide a different approach to this question, this paper borrows from the contributions of other disciplines by taking a closer look at the impact of culture on economic growth and development.  Drawing on the Standard Cross Cultural Sample (SCCS), we attempt to separate the effects of culture vs. institutions and empirically investigate the effects of each on the economy.  The SCCS is a data set widely used by anthropologists and sociologists which is coded for societal and cultural traits of pre-industrial societies. Using it allows us to circumvent the problem of reverse causality which exists in studies which utilize variables measuring contemporary institutional quality.  We also control for geography to test whether physical characteristics such as climate, disease burden, soil quality etc. can directly influence output or whether they are indirectly linked via culture and institutions.

Preliminary findings indicate that cultural traits have geographical origins and that culture may directly influence economic growth, even after controlling for institutions. While the point is not to suggest a sort of ‘cultural determinism’, these findings are important from a policy perspective.  Further research would be useful to delve deeper into these connections and enable developing countries to choose appropriate policies and incentives to guide them along the preferred growth trajectory.