What impact does culture have on an economy? A paper tries to answer

And what is the impact of economic policies on culture? The paper calls for more research

In this season of Hindu festivals, I thought it would be interesting to see what impact culture has on a country's economy. To my good fortune, I came across a recent paper on the subject.

I wanted to see if different cultures lead to different economic outcomes. This is the precise question asked in a paper written by Sara Lowes. 

The paper is called "Culture in Historical Political Economy".

Ms Lowes defines culture as "the set of socially transmitted values and beliefs held by individuals". She says these have "important implications for a wide variety of economic outcomes".

The broad area of study is called Historical Political Economy, or HPE. It examines the origins, evolution, and transmission of culture. Apparently, "historically determined cultural values and practices have been shown to affect a wide variety of key economic outcomes."

If you are interested in the subject, this paper provides an excellent summary of all the research that's been done on it so far. You may not feel very convinced at the end, but at least you would have learnt some new things. 

That culture has an impact on economic outcomes is not in doubt. But the extent and permanence of it are so varied that it's probably impossible to say anything definitive about it.

That's why I think the paper offers many explanatory variables without taking the risk of saying which of them is more important. The most important of these are preferences of which, says Ms Lowe, there are two types, economic and social.

Where the former are concerned, "the ability to delay gratification may have important economic implications". This means that "patience is correlated with per capita income, as well as the accumulation of human and physical capital". India is undoubtedly an excellent example of this. We have been waiting for 75 years for mass prosperity.

As to social preferences, the paper says, "Individualist cultures emphasise personal accomplishments, individual freedom, and status. In contrast, collectivist societies encourage conformity, which may make collective action easier." So where does India fit, individualist or collective?

Then there is trust. The author says, "moral universalism – the tendency to trust in-group and out-group members equally – is associated with different policy preferences". Think Indian business communities, and you get the picture.

An important part of trust relationships is family and kinship. "A key dimension on which kinship structures can vary is whether group membership and inheritance is traced through women, as in matrilineal systems, or through men, as in patrilineal systems".

The former is seen as better, which is consistent with my view that women do better at everything that requires cooperation. However, "matrilineal individuals cooperate less in a lab experiment with their spouses". This means, I think, husbands and wives mostly don't get along.

Finally, there is the all-important religiosity factor. Creating a collective identity has "important implications for the scope of cooperation". It seems "Protestantism led to greater economic prosperity because it encouraged the accumulation of human capital" because of "the ability of girls to read the bible."

There are some other questions that the paper doesn't address. For example, what effect does culture have on savings and investment behaviour in a country and tax policies?

Indians typically tend to both save — and therefore invest — a lot when the government lets them by not taxing them too heavily. If it does, they simply understate their incomes and assets.

Is this a cultural thing, or do economic policies affect the culture of a society? I mean, it's all very well to study the impact of culture on economic outcomes, but what about the reverse, that is, the impact of economic policies on culture?

As the paper concludes, a lot more research is needed.