Culture and Institutions: Economic Development in the Regions of Europe∗
Culture and institutions: ∗ economic development in the regions of Europe by Guido Tabellini (IGIER, Bocconi University) This version: May 2006 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 self- determination. 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. Keywords: culture, economic development, trust, literacy, institutions. JEL No. O10, F10, P10, N13 ∗ I am grateful to Simon Johnson for giving me historical data on city size, to Daron Acemoglu, Fabio Canova, Antonio Ciccone, Carlo Favero, Eliana La Ferrara, Ross Levine, Andrea Ichino, Luca Sala, Andrei Shleifer, Roman Wacziarg and participants in seminars at Berkeley, Catholic University in Milan, CIAR, ESSIM, the European University Institute, Harvard, IGIER, the IMF, Zurich, Collegio Carlo Alberto and NBER for helpful comments, to Elena Besedina, Marcello Miccoli and Massimiliano Onorato for outstanding research assistance, and to Bocconi University, CIAR and MIUR for financial support.
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