Culture and Economics

The culture hypothesis in economic development states that values, preferences and beliefs of individuals and societies play a key role in economic performance.  This is the view endorsed by Max Weber (1930) in his explanation on how Protestantism influenced industrialization.  Hayek (1944) stresses the importance of the emergence of a new culture for the creation and sustenance of an open-market economy.  Culture underpins North’s (1991) “rules of the game” of society, which suggests that the channel through which culture affects economic performance is via its influence on institutions. Verifying the culture hypothesis empirically is challenging due to the vagueness of the concept of culture, the issues that this raises in turn for measuring culture in the data, and related difficulties with estimation of the effects of culture.  But more recently researchers have started to undertake new innovative approaches in order to solve these issues and to find persuasive evidence that culture actually matters for economic outcomes.
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