CULTURE AND INSTITUTIONS:
ECONOMIC
DEVELOPMENT IN THE REGIONS OF
EUROPE
Guido Tabellini
INTRODUCTION
The aim of the paper is to examine the
relationship between culture and economic
development
PREVIOUS LITERATURE
• North (1981) : institutions
• Hall and Jones (1999); Acemoglu , Johnson
and Robinson (2001) : colonial origins
• La Porta (1999) : legal origins
PREVIOUS LITERATURE
• Banfield (1950) ; Putnam (1993) : difference
between North and South of Italy due to their
distant histories and traditions
• Beugelsdijk and von Schaik (2001): correlation
between social capital and per capita output
across European regions
• Guiso, Sapienza, and Zingales (2008) : historical
origins of social capita across Italian cities
• Tabellini (2008a)
MAIN IDEA
• History shapes institutions, in particular the
ones protecting property rights.
The development of certain kind of
institutions can affect the current economical
situation of a country.
HOW CAN WE MEASURE
INSTITUTIONS?
• North :"Institutions are the humanly devised
constraints that structure political,
economic and social interaction. They consist
of both informal constraints
(sanctions, taboos, customs, traditions, and
codes of conduct), and formal(constitutions,
laws, property rights).”
Which variables can capture this
phenomenon?
• To transform a "sticky" variable, as institution is, in a more dynamic
instrument we focus on a regional level ("within countries instead
than across countries")
• -We isolate the effect of common national institutions
• - We fix contemporaneous regional education and urbanization rate
in 1850s
• - We obtain cultural indicators depending only on historical
variables: regional literacy rate at the end of 19th century and
indicators of political institutions in the period from 1600 to 1850
• Historical institutions  Contemporary
institutions  Economic development
• Historical institutions  Culture Economic
development
DATA
• 69 regions in 8 european countries
• Eurostat database
• different level of disaggregation: NUTS 1
level and NUTS 2 level
PER CAPITA OUTPUT
• Definition: GVA in international prices
(adjusted for purchasing power), expressed in
percent of the EU15 average
• The data concern only the peiod from 1995 to
2000
EDUCATION
• Definition : regional differences in the education of
adult population, measured by enrollment in primary
and secondary schools in percent of the population of
the relevant age group.
• The datas refer to 1960s- 1970s; but the risk of reverse
causation and increases regional variations are reduced
if we take earlier dates
• It was not possible to obtain regional datas; so the
author had to rely on disparate national sources
• Variations come mainly from secondary school
enrollment
REGIONAL ECONOMIC DEVELOPMENT
• By fixing this variable, history would influence
current economic performance only through
culture rather than through a slow economical
process
• Problem: the datas don´t go back enough in
time
URBANIZATION IN 1850
• As a proxy for regional economic development: in
the 17th and 18th centuries cities were the
centre of commerce
• Definition: the fraction of regional population
that lived in cities with more than 30,000
individuals around 1850
• The threshold of 30,000 individuals is chosen to
maximize the correlation between past
urbanization and regional per capita output today
CULTURE
•
•
Datas refer to two different periods:
1990 – 1991
1995 – 1997
There are four cultural traits which are
measurable:
- two related with general trust and respect for
others welfare enhancing social interactions
 better institutions
-two related with confidence in virtues of
individualism  entrepreneurial environment
TRUST
• More efficient outcomes from interactions 
extension of anonymous market exchange
• Less cost of transactions outside of local
community  more benefit from trade
• “Generally speaking, would you say that most
people can be trusted or that you can’t be too
careful in dealing with people?”
PLATTEU (2000)
• General vs limited morality:
- hierarchical societies: morality applied in
small network
- democratic societies: abstract rules of good
conduct apply to many social situations
• Chiaromonte (Banfield 1958)
RESPECT
• To measure in a more direct way general vs.
limited morality, we observe the values that
parents consider important to teach to their
children
OBEDIENCE
• In hierarchical societies individualism is
mistrusted  the good behaviour is a result of
coercion
• As a result, individual initiative and
cooperation within a group could be stifled,
with bad consequences affecting the
economic development of a country
CONTROL
• This variable measures the extent of the
conviction that individual effort is likely to pay
off
- Highly motivated people : work hard, invest,
innovate, undertake new economic initiatives
- low motivated people: passive, resigned,lazy
attitude
• The attention is focused on four cultural traits:
- three (trust, control, respect) are expected to
promote economic development
- one(obedience) is expected to hurt it
Estimation Strategy
• Y = α + δC + βYo + γX + e
• X denotes education of the currently adult
population (measured by school enrollment in
1960), and country dummies (that capture
current national institutions)
• δ is the coefficient of interest
Estimation Strategy
• Y = α + δC + βYo + γX + e
• The problem is that culture and the
unobserved error term in our equation are
likely to be correlated.
Estimation Strategy
• Approach:
Culture is shaped by contemporaneous social
interactions and the cultural traditions
inherited from earlier generations.
Bisin and Verdier (2001), Benabou and Tirole (2006), and
Tabellini (2008b)
Estimation Strategy
• C = a + dCo + bYo + cX + u
• u is capturing all other determinants of culture
(including a reverse feedback effect from
output to culture)
• Co would be a natural instrument for current
culture --> Solution for endogeneity problem
Estimation Strategy
• Problem: Co is unobserved
• Solution: The culture of earlier generations is
shaped by past social interactions, and hence
by historical features of the political and
economic environment.
• --> C = λ1 + λ2Xo + λ3Yo + λ4X + v
Estimation Strategy
• Vector Xo is the historical counterpart of the
variables in X, namely education and political
institutions in the distant past. Past education is
measured by the literacy rate around 1880
(literacy), and early political institutions are
measured by constraints on the executives in the
years 1600–1850 (pc-institutions).
• This isolates the variation in culture that is
exogenous --> δ only exploits this exogenous
variation in culture
History shapes culture
• Example 1:
Imagine an autocratic regime that fosters an
environment of mistrust and
helplessness/resignation.
Illiteracy is likely to reinforce these negative
attitudes, because it isolates individuals and it
reduces their ability to control and understand the
external environment.
History shapes culture
• Example 2:
The effect on culture will be opposite in a
republican regime where productive
entrepreneurs or traders participate openly in
the political organization of society, the rule of
law is respected, and supreme authority is
constrained by checks and balances
Validity of Instruments
• Assumption:
The variables literacy and institutions are valid
instruments, namely, are uncorrelated with the
error term e in the out put regression.
--> Effects have to be indirect (remeber: we want
to measure culture)
But: Possible lasting effect of literacy on sectoral
compsotion? Or, institutions on smaller
endowments of infrastructure?
Literacy and early institutions
• For literacy the authors collected data from
various sources on the literacy rate around
1880 by region.
• The data on early political institutions is based
on the data set POLITY IV which uses
Constraints on the Executive as code for
instituions.
Constraints on the Executive
• According to this criterion, better political
institutions have one or both features: The holder
of executive powers is accountable to bodies of
political representatives or to citizens; and/or
government authority is constrained by checks
and balances and by the rule of law.
• It varies from 1 (unlimited authority) to 7
(accountable executive, constrained by checks
and balances)
Summary
• Summarizing, all the instrumental variable
estimates discussed so far portray a remarkably
consistent and robust picture: First, past political
institutions and low literacy rates left a mark on
regional culture; second, this cultural legacy of
history is an important determinant of current
economic performance; and third, the data
cannot reject that past political institutions and
literacy rates of previous generations influence
economic performance only through culture,
particularly when culture is measured by broad
aggregates.
Questions
• In which other ways could culture influence economic
development?
• Is there something like an eurocentric bias in the
definition of culture?
• Does the findings of this paper challenge that
"institutions matter"?
• Is literacy really a valid instrument?
• Possible omitted bias variable? What about religion?
• Definition of culture as formal institutions? Not all
ideas of its time might become institutionalized but
they sure interact with institutions. Bias if we just
measure observable part of culture (Distinctness)?
Thank you for your
attention!