Saturday, January 11, 2014

11/1/2014: Individualism v Collectivism: Dynamic Effects of Culture on Innovation & Growth

A few years old, but very good paper: "Culture, Institutions and the Wealth of Nations" by Gorodnichenko, Yuriy and Roland, Gérard (September 2010, NBER Working Paper No. w16368:

Based on an endogenous growth model with cultural variable the paper "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."

Empirical findings: "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."

And robustness checks: "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."

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