Does Culture Affect Economic Outcomes?

U ntil recently, economists have been reluctant to rely on culture as a possible determinant of economic phenomena. Much of this reluctance stems from the very notion of culture: it is so broad and the channels through which it can enter economic discourse so ubiquitous (and vague) that it is difficult to design testable, refutable hypotheses. Without testable hypotheses, however, there is no role for culture in economics except perhaps as a selection mechanism among multiple equilibria (Greif, 1994, 2006). In recent years, however, better techniques and more data have made it possible to identify systematic differences in people’s preferences and beliefs and to relate them to various measures of cultural legacy. These developments suggest an approach to introducing culturally-based explanations into economics that can be tested and may substantially enrich our understanding of economic phenomena. This paper summarizes this approach and its achievements so far, outlining at the end directions for future research. A necessary first step is to define culture in a sufficiently narrow way, so that it becomes easier to identify a causal link from culture to economic outcomes. For this reason, we define culture as those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation. While this