Thursday, September 16, 2010

Does Culture Affect Economic Outcomes?

At our last Economics and Moral Sentiments Group we engaged a 2006 article in the Journal of Economic Perspectives titled, “Does Culture Affect Economic Outcomes?” The article represents a summary of a recent swell in research conducted about how culture influences the economy. First, the authors begin with their definition of culture:

“Those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation.”

Compare that definition with other common definitions of culture in sociology. In 1871 Edward B. Tylor described culture as, “That complex whole which includes knowledge, beliefs, art, morals, law, customs and other capabilities and habits acquired by man as a member of society.” Moreover, Richard A. Peterson describes the views of his contemporaries when he writes, “Culture consists of four sorts of elements: norms, values, beliefs, and expressive symbols.”

This latter view is consistent with major sociological textbooks such as the “Essentials of Sociology” by Brinkerhoff et al which sets on my bookshelf. The important distinction between the economists’ definition and the sociologists is the part about “unchanged from generation to generation.” The economic researchers believe that since this part of culture is unchanged the economic structure is not influencing those elements of life. Therefore, if they attempt to explain economic outcomes by culture they can be sure that is the appropriate causal direction.

There are two other strategies that the authors summarize that have been employed by economic scholars: natural experiments and experimental economics. The natural experiments can best be summarized as some outside shock to culture. The authors discuss the 2nd Vatican Council as an example that drastically changed many elements of culture in the Catholic Church. Presumably, this shock would allow a researcher to exploit any variation in economic activity as emerging from these new cultural patterns. On the other hand, experiments can be conducted in different people groups to detect cultural differences. These detect cultural difference because the underlying strategy (derived from math) of the games do not change; but, perceptions about the games do change.

The problems with these last two approaches is in assuming that the outside shock really represented an outside shock and not just a representation of what was already happening in the Catholic Culture. Also, with experiments the variation in playing the game acts as a signpost to a possible set of reasons that different people groups play the game differently. It does not tell us exactly why.

Nevertheless, the paper was a neat paper to read and discuss in our readings group. If you believed everything the authors wrote about strategy for testing cultural impacts on economics and you liked their use of the World Values Survey Data then you would come to the following conclusions:

1. Culture Influences Saving Rates via Religious Teaching
2. Culture Influences Levels of Trust which in turn increase trade and entrepreneurship
3. Judeo-Christian Religions are opposed to re-distribution relative to non-religious/atheists

What does this add up to? Religious people are more likely to save. Trustworthy and trusting people are more likely to engage in entrepreneurship and trade with each other. Sounds a lot like these regressions are pointing to Max Weber.

No comments: