Working Paper: NBER ID: w23375
Authors: Alberto Bisin; Thierry Verdier
Abstract: Explanations of economic growth and prosperity commonly identify a unique causal effect, e.g., institutions, culture, human capital, geography. In this paper we provide instead a theoretical modeling of the interaction between culture and institutions and their effects on economic activity. We characterize conditions on the socio-economic environment such that culture and institutions complement (resp. substitute) each other, giving rise to a multiplier effect which amplifies (resp. dampens) their combined ability to spur economic activity. We show how the joint dynamics of culture and institutions may display interesting non-ergodic behavior, hysteresis, oscillations, and comparative dynamics. Finally, in specific example societies, we study how culture and institutions interact to determine the sustainability of extractive societies as well as the formation of civic capital and of legal systems protecting property rights.
Keywords: Culture; Institutions; Economic Activity; Civic Capital; Extractive Institutions
JEL Codes: O10; P16; P48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Culture and Institutions (O43) | Economic Activity (R11) |
| Culture (Z00) | Institutions (D02) |
| Institutions (D02) | Culture (Z00) |
| Culture and Institutions (Complementary) (O43) | Economic Activity (R11) |
| Culture and Institutions (Substitutes) (O43) | Economic Activity (R11) |
| Cultural Dynamics (Z10) | Institutional Change (D02) |
| Institutional Change (D02) | Cultural Dynamics (Z10) |
| Cultural Multiplier (Positive) (Z10) | Economic Outcomes (P47) |
| Cultural Multiplier (Negative) (Z10) | Economic Growth (O49) |