| Abstract: |
Does culture have a causal effect on economic development? The data on
European regions suggest that it does. Culture is measured by indicators of
individual values and beliefs, such as trust and respect for others, and
confidence in individual selfdetermination. To isolate the exogenous variation
in culture, I rely on two historical variables used as instruments: the
literacy rate at the end of the XIXth century, and the political institutions
in place over the past several centuries. The political and social history of
Europe provides a rich source of variation in these two variables at a
regional level. The exogenous component of culture due to history is strongly
correlated with current regional economic development, after controlling for
contemporaneous education, urbanization rates around 1850 and national
effects. Moreover, the data do not reject the over-identifying assumption that
the two historical variables used as instruments only influence regional
development through culture. The indicators of culture used in this paper are
also strongly correlated with economic development and with available measures
of institutions in a cross-country setting. |