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The interaction of individual values and sticky formal institutions in economic development

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  • Judit Kapás

Abstract

This paper intends to take a step towards improving our understanding of how culture affects economic development. Relying on the theory of institutional stickiness (Boettke et al. 2008), the main hypothesis is that the "deep" cultural layer (proxied by individual values) interacts with the stickiest formal institutions in development, which leads to a very special "stuck-together" phenomenon. The aim of the paper is to investigate this specific effect empirically, and show the genuinely unique role of individual values in development. The cross-country empirical analyses provide details as regards the "stuck-togetherness" of values and institutions. Besides establishing that both values and sticky formal institutions are strong determinants of long-run income, I find that the "stuck-togetherness" of values and institutions acts as a separate factor in development, and, in addition, amplifies the impact of values on development in the good-institution countries. Another result is that better formal institutions increase the marginal income-increasing effect of those individual values that are favorable to development. The results seem to be very robust.

Suggested Citation

  • Judit Kapás, 2019. "The interaction of individual values and sticky formal institutions in economic development," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 16(1), pages 41-67, June.
    • Handle: RePEc:liu:liucej:v:16:y:2019:i:1:p:41-67
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    References listed on IDEAS

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    1. Peter J. Boettke & Christopher J. Coyne & Peter T. Leeson, 2015. "Institutional stickiness and the New Development Economics," Chapters, in: Laura E. Grube & Virgil Henry Storr (ed.), Culture and Economic Action, chapter 6, pages 123-146, Edward Elgar Publishing.
    2. Yuriy Gorodnichenko & Gerard Roland, 2011. "Which Dimensions of Culture Matter for Long-Run Growth?," American Economic Review, American Economic Association, vol. 101(3), pages 492-498, May.
    3. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2006. "Does Culture Affect Economic Outcomes?," Journal of Economic Perspectives, American Economic Association, vol. 20(2), pages 23-48, Spring.
    4. Philippe Aghion & Steven Durlauf (ed.), 2005. "Handbook of Economic Growth," Handbook of Economic Growth, Elsevier, edition 1, volume 1, number 1.
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