# **Does Culture Matter for Development?**

Prepared by Augusto Lopez-Claros and Valeria Perotti

# **1. Introduction**

It is perhaps entirely understandable that, in looking for factors that have a bearing on the pace and the nature of economic development, economists in academia and policy makers in government have generally focused their attention on tangible phenomena, on things that can be measured and that can be influenced in some way through changes in policy. Indeed, much of what has been done in the past century in the economics profession is to systematize our understanding of economic relationships with a view to using such knowledge to help deliver particular outcomes. Along the way, we have learned that successful economic development is an extremely complex process and that its determinants are many in number and deeply interconnected.

For a variety of reasons, economists have tended to avoid getting too closely involved with the concept of culture and the role it may play in moving a country forward. In the abstract there is no doubt a general acceptance that a particular work ethic, a system of personal values and attitudes must have a role in guiding a population along a particular development path; indeed, how could it be otherwise? But there is a core set of anxieties at the heart of the concept of culture that have discouraged broader public discourse. Landes (2000) understands these anxieties to reflect a certain kind of discomfort with what can be construed as implied criticism of a particular culture. If culture matters for development then there is an immediate danger of attributing particular development outcomes to the _wrong_ sort of culture and this may cause injury to identity and selfesteem. “Coming from outsiders, such animadversions, however tactful and indirect, stink of condescension” is how Landes puts it (p. 2). What makes the subject particularly challenging is that there may be instances in which it is not possible to make sense of and explain specific phenomena—for instance, Japan’s emergence in the 20<sup>th</sup> century as a global economic power—without appealing to the role of culture and its many dimensions.

In the last ten years or so, some researchers have started to study how culture affects economic outcomes, using a conceptual framework derived from economic theory.<sup>2</sup> Culture can help explain how individuals think, interact with each other, and how they make economic decisions. For this reason, the topic of culture and development is also strictly related with the field of behavioral economics, which focuses on the role of psychological and social factors in an individual’s decision-making process. Further, thanks to the availability of data collected by social surveys such as the World Values Survey and Eurobarometer, economists have been able to test some of these relationships empirically, although much remains unexplored. In particular, although the literature is

> 2 For example, Guiso, Sapienza and Zingales (2006) introduce culture by using two elements of the economics toolbox: _prior beliefs_ (probabilities attached to specific events) and _preferences_ . They then summarize the existing empirical economic literature on the subject to show that culture affects economic outcomes: first they show that culture affects beliefs and preferences, and then they show that beliefs and preferences affect economic outcomes.

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