Cultural distance and income divergence over time

Instead of featuring a long-awaited convergence process, the second half of the twentieth century witnessed a dramatic income divergence across countries. We propose cultural distance between countries as a determinant of this economic divergence. Cultural similarity makes it easier for societies to interact, learn and adopt from one another. Consequently, cultural differences may lead to economic divergence over time as they slow down the adoption of technological and institutional innovations from the frontier countries. We show that the overall economic divergence observed in the world since the 1950s is driven by countries with high relative cultural distance to the technological frontier. In contrast, the income gap among countries with low relative cultural distance remained unchanged over time. Further analysis reveals that a one-unit rise in relative cultural distance to the frontier is associated with an increased income divergence of almost seven units.