1. CULTURE, INSTITUTIONS, AND THE WEALTH OF NATIONS. (GORODNICHENKO &
ROLAND)
Abstract: We argue that a more individualist culture leads to more innovation and to higher growth
because of the social status rewards associated with innovation in that culture. We use data on the
frequency of particular genes associated with collectivist cultures, as well as a measure of distance in
terms of frequencies of blood types, and historic prevalence of pathogens to instrument individualism
scores. The relationship between individualism and innovation/growth remains strong even after
controlling for institutions and other potentially confounding factors. We also provide evidence
consistent with two-way causality between culture and institutions.
This paper argues that individualist culture plays a key role in stimulating innovations and, hence,
in explaining long-run economic growth.
Culture is defined as the set of values and beliefs people have about how the world (both nature and
society) works, as well as the norms of behaviour derived from that set of values.
So, culture affects not only social norms, but also economic behaviour (Investment choices,
propensity to save or innovate).
- Culture is directly related to institutions: Culture (formal political or legal institutions) impose
constraints on individual behaviour.
Individualism is a cultural trait that emphasized personal freedom and achievement.
- It awards social status to personal accomplishments (Important discoveries, innovation, action that
make an individual stand out).
- Thus, should encourage innovation more. Dynamic effect in terms of innovation, therefore
individualistic culture has an edge in long-run economic growth.
- However, can make collective action more difficult, because individuals pursue their own interest
without internalizing collective interest
Collectivism emphasized the embeddedness of individuals in a larger group.
- Makes collective action easier, because individuals internalize group interests to a greater degree.
- Thus, have an advantage in coordinating production processes and in various forms of collective
action.
- However, it encourages conformity a loyalty to a group and discourages individuals from dissenting
and standing out.
- Has a static effect in terms of innovation.
Several IV’s that are strongly suggestive of a possible causal link from individualism to long-run
growth:
1. The prevalence of certain genes in a population
2. A measure of genetic distance between the population in a given country and the population in the
United Kingdom (second most individualistic country in their sample)
, Parents transmit their genes as well as their cultural values to their offspring. Therefore,
populations that interbreed a lot should be genetically and culturally close. They exploit a correlation
between genetic distance and cultural differences across populations.
3. Econometric results show a significant effect of individualism on income per worker.
To isolate the effect of individualism on economic development from alternative channels, they are
controlling for institutions and other potentially confounding factors (A battery of checks and tests).
Economic argument
How individualism/collectivism can affect long-term growth and development via innovation and
production.
Hypothesis: Individualistic societies permit and encourage more innovation than collectivist societies
by providing a higher social status for individuals who make important discoveries.
- Market power, rewards from patents, but also other dimensions, such as social status can
compensate innovators for their efforts.
- By stimulating more innovations, individualism gives a dynamic advantage that can lead to higher
economic growth.
Hypothesis: The advantage of collectivist societies is on the production side, which involves
combining inputs and hence requires coordination of workers and units. Such coordination is easier
to achieve in collectivist cultures.
- Teamwork and consensus are defining features of ways to run business (Organizational culture).
Example: Efforts to copy the Japanese organization inside the U.S. automobile factories failed,
because the American carmakers could not imitate Toyota’s culture.
The majority of radical innovations came from the United States and Western Europe (Individualistic
cultures). The collectivist countries may be good at incremental innovations (small improvements or
upgrades).
For example: The color TV was invented by an American Firm, but Japan (Collectivist country)
ended up making the best TV sets.
- Incremental innovations have a diminishing return and gains are limited in the long run.
- New technology will probably be pushed forward through individualistic societies.
- Collectivist societies can try to close the technology gap by the international diffusion of
technology, but this is a gradual process and takes time. It makes it impossible to transport new
technologies costlessly and immediately to other countries.
In summary, there is a trade-off between the benefits and costs of individualism and collectivism.
Individualism affects the output growth rate (benefit), while the costs affect the level of output (how
good it is). However, in the long run, more individualistic countries should grow faster and enjoy a
higher output level.
, Conclusion
They considered the hypothesis that individualism/collectivism can influence innovation and long-
run growth. This is tested in their analysis. They concluded that here is a strong relationship between
cultural attributes and economic outcomes, even after controlling for alternative explanations.
ROLAND)
Abstract: We argue that a more individualist culture leads to more innovation and to higher growth
because of the social status rewards associated with innovation in that culture. We use data on the
frequency of particular genes associated with collectivist cultures, as well as a measure of distance in
terms of frequencies of blood types, and historic prevalence of pathogens to instrument individualism
scores. The relationship between individualism and innovation/growth remains strong even after
controlling for institutions and other potentially confounding factors. We also provide evidence
consistent with two-way causality between culture and institutions.
This paper argues that individualist culture plays a key role in stimulating innovations and, hence,
in explaining long-run economic growth.
Culture is defined as the set of values and beliefs people have about how the world (both nature and
society) works, as well as the norms of behaviour derived from that set of values.
So, culture affects not only social norms, but also economic behaviour (Investment choices,
propensity to save or innovate).
- Culture is directly related to institutions: Culture (formal political or legal institutions) impose
constraints on individual behaviour.
Individualism is a cultural trait that emphasized personal freedom and achievement.
- It awards social status to personal accomplishments (Important discoveries, innovation, action that
make an individual stand out).
- Thus, should encourage innovation more. Dynamic effect in terms of innovation, therefore
individualistic culture has an edge in long-run economic growth.
- However, can make collective action more difficult, because individuals pursue their own interest
without internalizing collective interest
Collectivism emphasized the embeddedness of individuals in a larger group.
- Makes collective action easier, because individuals internalize group interests to a greater degree.
- Thus, have an advantage in coordinating production processes and in various forms of collective
action.
- However, it encourages conformity a loyalty to a group and discourages individuals from dissenting
and standing out.
- Has a static effect in terms of innovation.
Several IV’s that are strongly suggestive of a possible causal link from individualism to long-run
growth:
1. The prevalence of certain genes in a population
2. A measure of genetic distance between the population in a given country and the population in the
United Kingdom (second most individualistic country in their sample)
, Parents transmit their genes as well as their cultural values to their offspring. Therefore,
populations that interbreed a lot should be genetically and culturally close. They exploit a correlation
between genetic distance and cultural differences across populations.
3. Econometric results show a significant effect of individualism on income per worker.
To isolate the effect of individualism on economic development from alternative channels, they are
controlling for institutions and other potentially confounding factors (A battery of checks and tests).
Economic argument
How individualism/collectivism can affect long-term growth and development via innovation and
production.
Hypothesis: Individualistic societies permit and encourage more innovation than collectivist societies
by providing a higher social status for individuals who make important discoveries.
- Market power, rewards from patents, but also other dimensions, such as social status can
compensate innovators for their efforts.
- By stimulating more innovations, individualism gives a dynamic advantage that can lead to higher
economic growth.
Hypothesis: The advantage of collectivist societies is on the production side, which involves
combining inputs and hence requires coordination of workers and units. Such coordination is easier
to achieve in collectivist cultures.
- Teamwork and consensus are defining features of ways to run business (Organizational culture).
Example: Efforts to copy the Japanese organization inside the U.S. automobile factories failed,
because the American carmakers could not imitate Toyota’s culture.
The majority of radical innovations came from the United States and Western Europe (Individualistic
cultures). The collectivist countries may be good at incremental innovations (small improvements or
upgrades).
For example: The color TV was invented by an American Firm, but Japan (Collectivist country)
ended up making the best TV sets.
- Incremental innovations have a diminishing return and gains are limited in the long run.
- New technology will probably be pushed forward through individualistic societies.
- Collectivist societies can try to close the technology gap by the international diffusion of
technology, but this is a gradual process and takes time. It makes it impossible to transport new
technologies costlessly and immediately to other countries.
In summary, there is a trade-off between the benefits and costs of individualism and collectivism.
Individualism affects the output growth rate (benefit), while the costs affect the level of output (how
good it is). However, in the long run, more individualistic countries should grow faster and enjoy a
higher output level.
, Conclusion
They considered the hypothesis that individualism/collectivism can influence innovation and long-
run growth. This is tested in their analysis. They concluded that here is a strong relationship between
cultural attributes and economic outcomes, even after controlling for alternative explanations.
