Culture

In a recent NBER Working Paper, Nathan Nunn explains why economists need to (re)consider culture as causal explanation for a country’s economic performance. Historical shocks, such as the adoption of plough agriculture, the slave trade, or missionary activities, he argues, affects culture, and culture affects economic activity. In the spirit of Acemoglu, Johnson and Robinson, Nunn suggests that culture (instead of institutions, as AJR argues) is one mechanism through which historical events influence economic development today.

But what is culture? Nunn builds on a large literature to define culture as ‘fast-and-frugal’ decision-making heuristics or ‘short-cuts’. When faced with a decision, individuals rely on their past experiences to reduce the high ‘cognitive cost’ of making the decisions. But their past experiences are not only shaped by their own past decisions, but also by the decisions of those individuals around them, the members of their society, i.e. culture is a collective for a society’s gut-feel of what is the right thing to do. With this in mind, Nunn argues that this collective gut-feel is influenced by historical events. The slave trade, for example, “altered the cultural norms of the descendants of those exposed to the trade, making them inherently less trusting”. The possibility of being captured by your neighbour reduced your willingness to trust them, an important precondition for a functioning market society. Or, to use another example, Avner Greif (1994) shows how differences between the Genoa and Maghribi traders have their origins in the “different strategies undertaken by medieval merchants to prevent overseas agents from behaving opportunistically during long-distance trade”. Whereas the Maghribi merchants relied on collective enforcement to punish any agent who had cheated, the Genoese merchants followed an individual punishment strategy. The two systems resulted in two distinct cultural trajectories. Nunn argues that such cultural trajectories still matter today. In earlier research, for example, he shows that lower trust in African communities that were worse affected by the slave trade are still poorer today. He’s results show that both institutions and culture explain this, but that the cultural component (i.e. lack of trust) explains most of the variation.

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