The culture in economic outcomes

Economists have been reluctant to rely on culture as a possible determinant of economic phenomena. If in the past, the definition of culture in economic contests was so equivocal. Nowadays, thanks to better techniques and to the opportunity of accessing more complete database, it is possible to identify systematic differences in people’s preferences and to relate them to various measures of cultural legacy. These measures can be tested and are able to enrich our understanding of economic phenomena. Today, it is popularly believed that culture has a significant effect on economic performance. In the first chapter, the goal is to distil the common lesson contained in the papers that have used culture to explain economic phenomena and show the broad applicability of culture to diverse areas of economics. Furthermore, to trace the effects of culture through the economic channels several papers use different instruments. In the second chapter, using a theory based on gravity model equation, we evaluate the consistency of Huntington’s Clash of Civilizations theory from an economic point of view. We assess whether culture plays a critical role as envisaged in Huntington (1993) or whether other social, political and economic factors may explain international trade flows. The gravity specification is used to establish the determinants of bilateral trade. We carry out our analysis starting from a simply model when only economic and geographic variables are used. Subsequently, we write our specification employing political and cultural variables. The novelty of this research is that the explanatory variables listed above were not all together studied in the same regression, but only separated so far. Additionally, in the previous studies cultural components like language and religion have been highly simplified (for example, the linguistic links between countries are treated as a dummy variable). In our research, for a more accurate estimation we use index of linguistic and religious distance among countries: these measures reflect varying understandings of the term itself. To further corroborate our findings we make use of different estimators. Our results do not vary qualitatively. In recent decades, the ethnic composition of population has changed substantially, leading to a rapid increase of cultural diversity. Recent research deals with economic costs and benefits of cultural diversity stemming from immigration. The third chapter investigates the impact of cultural diversity of the workforce on innovation output using a panel of US States for the period 2000–2010. The testing results show a different impact of workforce level on the performance for two dominant ethnic groups, i.e., whites and blacks.