Regional Spillovers and the culture-development nexus

Macroeconomic theory documents four fundamental causes of growth: luck, geography, culture and institutions (Acemoglu, 2009). We test the relevance of those factors across a set of European regions. In a recent contribution, Tabellini (2010) estimates the impact of culture on the economic development of Western Europe, finding that the latter can explain the large differences in economic development among European regions. In this paper, we show that the aforementioned analysis does not adequately assess the impact of culture, since it fails to take into consideration the role played by geography. Using the same dataset in Tabellini (2010), we aim at filling such a gap, showing that the impact of culture is over–estimated, while its impact is correctly evaluated, if we account for regional spill–overs. In addition, we expand the model by including a proxy for the quality of institutions and one for the amount of natural resources, to control for the additional variables that the literature indicates as crucial driver of economic development. The inclusion of the aforementioned variables allows us to further underline the crucial role played by geography. In fact, if the impact of culture does not dramatically change, when we control for the quality of institutions and the extent of natural resources, then the trajectory of development in the European regions under analysis and, more importantly, the difference in the results with respect to the results in Tabellini (2010) are strongly influenced by the unchanged geographic factor.