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How "Cultural Distance" between Societies Can Hamper Economic Prosperity

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Uncovering the cause of disparities in long-term economic performance across societies is of paramount importance to economists. Differences in institutional quality and geographical advantages are usually invoked as reasons for the divergence in economic performance. Although both factors possess explanatory power there is renewed interest in exploring how culture impacts economic development. For decades, we have known that culture can shape economic progress. But recent research has enriched our understanding of cultural forces in explaining income disparities across societies.

One novel measurement to gauge the impact of culture is genetic distance. Genetic distance describes the cultural and evolutionary selections that result in the unequal distribution of personality traits and variation in allelic frequencies across populations. In a landmark paper Enrico Spolaore and Romain Wacziarg posit that culturally transmitted characteristics stemming from genetic distance create barriers to the diffusion of innovations.

The essence of the argument is that countries are more likely to appropriate innovations when they are developed by people who are culturally similar. This has implications for development because genetic distance can forestall the reception of policies and norms that conduce economic prosperity. For instance, Spolaore and Wacziarg in their paper observe that “differences in vertically transmitted characteristics hinder the adoption of norms of investment behavior that are possibly conducive to superior economic outcomes.”

More broadly, they also conclude that differences in income per capita across countries are positively associated with measures of genetic distance between populations. Notwithstanding the controversy this research has elicited, the findings are commonsensical. Basically, Spolaore and Wacziarg are contending that differences in culture erect barriers to the implementation of policies that cultivate economic growth. Essentially, since cultural norms vary by population, some countries may reject ideas that induce economic growth because they are incompatible with cultural beliefs. A popular case is a preference for communal property rights instead of individual rights in some developing countries.

Freedom to sell property and engage in commercial transactions without the input of kin groups aids in capital formation by facilitating large-scale business enterprises. As Joseph Henrich points out in his compelling book The WEIRDest People in the World, Western societies are unusually individualistic and in these societies people prefer the alienability of property. Considering that individualistic property systems ensuring the efficient transfer of land are likely to yield superior economic outcomes, the existence of collectivistic traits in some countries would create a barrier to the reform of property law.

Spolaore and Wacziarg admit that the burdens of genetic distance are not intractable, but the reality is that the consequences cannot be ignored. A 2011 study authored by them titled “Long Term Barriers to the International Diffusions of Innovations” asserts that greater distance from the technological frontier, in this case, the Western world and particularly America, is linked to higher imitation costs. This is because long-term evolutions create different preferences that block the diffusion of technologies. Spolaore and Wacziarg illuminate how genetic distance halts the dispersion of technology: “What matters, in our model, is that random historical divergence introduces different customs, habits and norms across populations, and that these differences, on average, tend to decrease their ability to learn from each other. Even relatively trivial differences in attitudes, appearance or behavior between groups may lead to misunderstanding or discrimination and may create significant barriers to communication and social interactions, reducing opportunities for learning and imitation.”

Likewise, a 2019 study by Sanjesh Kumar and Baljeet Singh that explored the relationship between genetic distance and technological innovation submits that greater genetic distance from the global frontier on innovation predicts lower levels of technological innovation. Furthermore, Vincenzo Bove and Gunes Gokmen in a 2018 publication replicated the findings of Spolaore and Wacziarg by validating the observation that genetic distance is a determinant of income disparities across populations.

Interestingly, they also note that “bilateral trade is one channel through which cultural differences retard the diffusion of development.” Given that people prefer associating with those who share commonalities, these findings are unsurprising. Cultural distance as a barrier to trade is well-documented in the economic literature. In fact, in the article “Genetic Distance, Cultural Differences, and the Formation of Regional Trade Agreements,” Benedikt Heid and Wenxi Lu aver that “higher genetic distance between two countries decreases their probability of having a trade agreement, even when controlling for geographic distance and other controls.”

Additionally, genetic distance even affects the diffusion of social norms and institutions. Using a dataset of linguistic distances between European regions to track fertility decline in Europe during 1830–1970, Spolaore and Wacziarg in a 2019 paper argue that fertility decline occurred earlier and was more prevalent in regions that were culturally closer to the French. In this scenario, France was the frontier. Hence, consistent with data on genetic distance, the cultural peers of France were more receptive to embracing norms of fertility control. Even more intriguing is the recent declaration of Brian Beach and W. Walker Hanlon that changes in fertility patterns in Britain during the nineteenth century were correlated with declines in fertility among culturally British citizens residing in foreign countries like Canada, America, and South Africa.

Moreover, evidence showing that genetic distance impacts the dispersal of institutions is equally interesting. Sharing their results with readers in the essay “The Diffusion of Institution,” Spolaore and Wacziarg write that “greater separation times between populations introduce barriers to the adoption of better institutions.” On another note, research suggests that countries possessing a shorter cultural distance from America are more likely to adopt and maintain transparent and competitive elections than more distantly related countries.

These results are important because they indicate how subtle differences in culture deter economic growth by creating impediments to the diffusion of knowledge. Yet they also reveal the fallacy of comparing different cultures. The cultural values of the West are not universally embraced. So, imploring non-Western populations to follow the European path to modernization is insensible when their notion of progress could be radically different. At some point we must admit the idiocy of comparing countries based on income levels, because many individuals in many countries clearly do not value the Western concept of progress.


Contact Lipton Matthews

Lipton Matthews is a researcher, business analyst, and contributor to Merion West, The Federalist, American Thinker, Intellectual Takeout, mises.org, and Imaginative Conservative. Visit his YouTube channel, with numerous interviews with a variety of scholars, here. He may be contacted at lo_matthews@yahoo.com or on Twitter (@matthewslipton).

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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