Individualism and economic growth — Gorodnichenko and Roland

yuriygorodnichenkoIn an NBER paper, “Culture, Institutions and the Wealth of Nations,” Yuriy Gorodnichenko and Gerard Roland compare the growth gains that individualist ethics generate compared to those of collectivist ethics. The first sentences of their abstract:

“We construct an endogenous growth model that includes a cultural variable along the dimension of individualism-collectivism. The model predicts that more individualism leads to more innovation because of the social rewards grolandassociated with innovation in an individualist culture. This cultural effect may offset the negative effects of bad institutions on growth. Collectivism leads to efficiency gains relative to individualism, but these gains are static, unlike the dynamic effect of individualism on growth through innovation. …”[1]

I came across their paper via David Rose’s The Moral Foundation of Economic Behavior (Oxford, 2014), in the context of Rose’s arguing that culture matters more than hard-wiring and institutions to generating high-trust societies. Here is Rose’s summary:

“It is hard to think of a concept like individualism being a matter of institutions rather than culture. Therefore, perhaps the most remarkable evidence of the power of culture to affect economic performance comes from Yuriy the-moral-foundation-of-economic-behaviorGorodnichenko and Gerald Roland (2010). They presented a model showing that while an ethic of individualism produces dynamic effects on growth, an ethic of collectivism produces only static gains. They also found evidence that individualism significantly contributes to long-run growth. In a subsequent paper (Gorodnichenko and Roland, 2011) they explored the effect that other factors might have on long-run growth and found that individualism was the most important and robustly significant factor of all.”[2]

Sources:

[1] Yuriy Gorodnichenko and Gerard Roland, “Culture, Institutions and the Wealth of Nations,” NBER Working Paper No. 16368, Issued in September 2010.

[2] David C. Rose, The Moral Foundation of Economic Behavior, Oxford University Press, 2014, p. 15.

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