Culture s impact on Economic Performance

Transcription

1 Nolwen POTIN MMOBE Student Thesis Dissertation-Master Thesis Module Culture s impact on Economic Performance Acknowledgements: I am grateful to my assessor the Professor Van Hemmen for his support and comments, to the Master MMOBE for giving me the opportunity to do a thesis dissertation, and to my family. This study is dedicated to Oscar M Valencia and my grandparents. 1

2 Introduction Does the culture influence the economic performance? Which cultural variables impact on economic performance? Which economic performance variables are used as dependent variables? Finally, how do existing studies contrast this influence? Hofstede (1980) and Schwartz (1990) were ones of the first authors to identify the cultural variables as determinant of economic performance. The World Values Survey (WVS) was developed in 2000 and is used as the main database to study social issues. This study presents a literature review and a regression analysis from the WVS data The purpose of the literature review is to study the cultural variables as determinant of economic performance (GDP-macro level, and sales-micro level). The regression analysis answers to this question Does the impact of cultural variables change according to the country s HDI classification? The literature review starts by presenting Hofstede s, Schwartz s, and WVS s cultural determinants. Then some works are done by contrasting the influence of individualism and collectivism characteristics on economic performance (Shulruf, Hattie, and Dixon (2007), Grief (1994), Oyersman et al (2002), Triandis (1995) Gouveia and Ros (2000), Gorodnichenko and Roland (2010, 2011)). Another interesting way to study the impact of culture on economic performance is to analyze the people s beliefs, values and preference, and the trust. These cultural factors are used as proxy variables of culture that influence the economic performance and institutions (Guiso, Sapienza and Zingales (2003, 2006), Tabellini (2008), La Porta, Lopez de Silanes, Shleifer and Vishny (1997), Schein s (1992), Adkins and Caldwell s (2004), and Kotter and Heskett s (1992), North (1990), Williamson (2000)). Other authors focus on the effect of the cultural transmission on second generation of immigrants in USA, and on consumers with the global consumer change and the acculturation phenomena (Bisin and Verdier (2001), Fernández, Fogli and Ottavianni (2003), Guiso, sapienza, and Zingales (2007), Ogden, Ogden, and Schau (2004), and Cleveland and Laroche (2007). After this literature review, a regression analysis from the WVS data 2000 is run to capture the impact on economic performance of cultural variables which are cultural transmission, beliefs, trust and voluntarism. Secondly, this part studies the extent to wich these cultural variables change according to the country s classification HDI. The result of the regression analysis represents a contribution in this topic because of the lack of empirical evidence dealing with this research issue: does cultural variables 2

3 impact vary, and why? Further research in this phenomena should help understand the impact of cultural variables on economic performance. 3

4 Background definitions and concepts: explaining the impact of cultural variables on economic performance. A review of the main empirical studies and databases In this part, the research of the main authors is presented to define and present the issue of culture as a determinant of economic performance. Hofstede (1980, 1991, 2001), and Schwartz (1990) were first in defining cultural variables and in building surveys which paved the path to empirically determine the connection between culture and economic performance. One of the main databases used in this issue is the World Values Survey (WVS). Shulruf, Hattie, and Dixon (2007) stress on the duality individualism/collectivism to capture the impact of culture on economic performance. Grief (1994), as a pioneer in this field, focuses on the same cultural distinction to demonstrate the impact of two cultures on trades: the Maghribis merchants collective enforcement mechanism and Genoese merchants individual enforcement mechanism on the historical economic performance. The individualism/collectivism contrast Shulruf, Hattie, and Dixon (2007), in an article entitled Development of a New Measurement Tool for Individualism and Collectivism, focus on the individualism and collectivism dimensions, and they define them by selecting three proxy variables. They propose the Oyersman et al. s (2002) questions as useful for collecting information through surveys about cultural variables (see table 1). As a consequence, they aim to identify the relevant variables to be used in the analysis of these two human beings behaviors and to explain how this can be done. The authors initially try to improve a model the independentinterdependent bi-polar scale: The horizontal-vertical scale, to the collectivism-individualism discussed by Triandis, in 1995, and Singelis, Trandis, Bhawuk, & Gelfand, in 1995 to define individualism s and collectivism s traits. These authors start by defining individualism and collectivism according to a vertical and horizontal perspectives described above. The individualist behavior aims to reach its self esteem by reaching his/her own interests (achievement orientation-vertical perspective) and s/he develops an independent behavior according to his/her beliefs, values and goals (unique social behavior-horizontal perspective). On the other hand, collectivist people aim to respect, fulfill and satisfy the social expectations and obligations (dutiful behavior-vertical perspective). They live as a member within a group and adopt its values, rules and harmony (cooperative behavior-horizontal perspective). These following diagrams illustrate the vertical-horizontal analysis. 4

5 Graph 1 the independent-interdependent bi-polar scale: The horizontal-vertical scale, to the collectivism-individualism by Triandis et al, 1995 The individualism s dimensions emphasize personal goals achievement and the collectivism s behavior is characterized through the social obligations and expectations. Moreover, the authors Shulruf, Hattie, and Dixon, cite the research done by Oyersman et al, in 2002, and use the following table where individualism and collectivism traits are described. They report the questions used in surveys to measure proxy variables of individualism and collectivism. 5

6 Table 1 Description and sample item of Individualism and Collectivism cultural dimensions, Oyserman et al (2002). Shulruf, Hattie, Dixon (2007) conclude that only three proxy variables contribute an accurate assessment individualism and collectivism. They characterize individualism by Compete, Uniqueness and Responsibility attributes and associate collectivism behavior to Closeness, Harmony and Advice variables. However they perceive that some variables like familiarism have an ambiguous meaning in questions that could be interpreted in different ways by people responding in surveys, concluding that these types of variables are not helpful to qualify either individualist or collectivist behavior. Grief, in 1994, studies the link between culture and economic performance by considering the culture to be individualism or collectivism as a key determinant of the economic performance and growth. In his work, he shows that the organization of a society is the translation of its members culture. The author studies cultural beliefs by focusing on their rational component. Rational cultural beliefs traduce the expectations of a member of a society during some trades and economic transactions towards the other person's actions. Since cultural beliefs are common, each individual will adopt her/his best strategy. This following table defines and summarizes the Grief s analysis about both cultures: individualist and collectivist through game theory (one side prisoner's dilemma game). The following table summarizes his findings. 6

7 The theoretical and historical analyses indicate the importance of cultural beliefs in the evolution of institutions and economy. Individualism Social organization resulted from legal, political, and economic system formally enforced Economic transactions are conduct among people from different groups and members shift frequently from one group to another Individualist members hires someone with a randomly process, pays him at the legal minimum threshold and this worker will lie when self enforced and formal rules are inefficient. Collectivism Social organization is enforced in a group by informal rules of behavior, enforced by numerous communication process, social rewards and punishments. collectivist member will invest in the network system to get information about the agent s past value, past performance and past actions a collectivist member hires only honest unemployed member and pays him at a high wage Table 2 Grief s analysis about both cultures: individualist and collectivist through game theory (one side prisoner's dilemma game) Grief briefly concludes that the collectivist system (like Maghribis) is more efficient in supporting intraeconomy agency relation than individualist system (like Genoese). Collectivist social organization requires less costly formal organizations but restricts efficient inter-economy agency relations. Each system entails different patterns of wealth distribution and that divergence has different efficiency implications on economic performance and institutions. Hofstede s, Schwartz s, and World Values Survey s cultural determinants Several studies link culture with economic performance by using Hofstede s, Schwartz s model and the database World Values Survey. Hofstede (1980, 1991, 2001), defines four cultural dimensions. Schwartz (1990) does not stress on the duality individualism/collectivism and proposes seven cultural dimensions. The World Values Survey (WVS) aims to capture social variables. Many authors use data about trust provided by WVS to demonstrate the impact of social capital (i.e. a proxy variable of culture) on economic performance. These elements are summarized in the following table: 7

8 Concept Definition How getting data Hofstede s Model Individualism- People classified by INDIVIDUALISM Collectivism individualist take care about themselves and aim to achieve «Have a job which leaves you sufficient time for your personal or family life», «Have considerable alone their goals to get freedom to adapt your own approach to the job», recognition and rewards of and «Have challenging work to do work from their success. Collectivist which you can get a personal sense of people behave according to accomplishment.» social obligations and COLLECTIVISM expectations. «Have training opportunities (to improve your skills or learn new skills)» and «Have good physical working conditions (good ventilation and lighting, adequate work space, etc.).» Power distance Power distance is a subjective appreciation of a society about Managers should make most decisions without consulting subordinates. It is frequently necessary the legitimacy of unequal for a manager to use authority and power when distribution of the power in institutions and organizations dealing with subordinates. Managers should seldom ask for the opinions of employees. (power to make decision, Employees should not disagree with management power to initiate change ). decisions. Managers should not delegate important tasks to employees. Masculinityfeminity Individual s concept of being such as masculinity is related to accomplishment, heroism, severity and material success. Feminity is associated to preference for relationships, modesty, attention to the weak and quality of life. Meetings are usually run more effectively when they are chaired by a man. It is more important for men to have a professional career than it is for women to have a professional career. Men usually solve problems with logical analysis; women usually solve problems with intuition. Solving organizational problems usually requires an active, forcible approach which is typical of 8

9 men. It is preferable to have a man in a high level position rather than a woman. Uncertainty avoidance Uncertainty avoidance measures the degree that members of society are willing to accept unstable and ambiguity situation. This leads to them to support beliefs that promise certainty and to maintain institutions that protect conformity. It is important to have job requirements and instructions spelled out in detail so that employees always know what they are expected to do. Managers expect workers to closely follow instructions and procedures. Rules and regularities are important because they inform workers what the organization expects of them. Standard operating procedures are helpful to employees on the job. Instructions for operations are important for employees on the job. Schwartz s Model Harmony Embeddedness, conservation Hierarchy Sample items from Wu (2006) Harmony is perceived as a The motivational goal of this type is safety, characteristic of culture that harmony, and stability of society or relationships, transcribes peaceful and of self. relationship and a trend to avoid conflict and change and so promotes stability and constancy. Embeddedness is a culture The motivational goal of tradition values is respect, characteristic that traduces the commitment, and acceptance of the customs and behavior of a member within a ideas that one's culture or religion imposes on the homogenous group. The individual. A traditional mode of behavior becomes member has to avoid conflict, a symbol of the group's solidarity and an expression has to accept and respect the of its unique worth and, hopefully,its survival. main trends of his/her group. Hierarchy is a type of a society The motivational goal of this type is restraint of 9

10 Competency Affective autonomy Intellectual autonomy Egalitarianism structure influenced by path dependency. Each member of a society is attributed to a responsibility, a task and as a consequence receives a level of power and responsibilities as a role within the group. Competency is a value that gives priority to the dominance of the surroundings through self-affirmation (ambition, success, risk). It is related with affective individualism through sharing the desire for activity and stimulation and presupposing the legitimacy of changing the status quo. Affective autonomy is a part of a member of a society that consists of doing and pursuing actions for their own interest. Intellectual autonomy is an intangible and implicit social rule that influences a member of a society to think by himself and then expressing his ideas and feelings. Egalitarianism is a value of a culture that protects and action, inclinations, and impulses likely to upset or harm others and violate social expectations or norms. It is derived from the requirement that individuals inhibit inclinations that might be socially disruptive in order for personal interaction and group functioning to run smoothly. The primary goal of this type is personal success through demonstrated competence. Competence is evaluated in terms of what is valued by the system or organization in which the individual is located. The motivational goal of stimulation values is excitement, novelty, and challenge in life. This value type is derived from the need for variety and stimulation in order to maintain an optimal level of activation. Thrill seeking can be the result of strong stimulation needs. The motivational goal of this value type is independent thought and action (for example, choosing, creating, exploring). Self-direction comes from the need for control and mastery along with the need for autonomy and independence. The motivational goal of universalism is the understanding, appreciation, tolerance, and 10

11 promotes norms of universalism and equality of rights of individuals. protection of the welfare for all people and for nature. WVS s cultural dimensions trust hard work and thrift tolerance Trust is a subjective and personal feeling that corresponds to the extent to which the individual believe and is confident on the others people s actions. Hard work is associated to the meaning of determination and perseverance. Thrift is a feature such as saving money and caring about things. Ignoring or accepting things perceived as different is an individual feature called tolerance. Ralston et al (1995)-Schwartz model description Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people? (yes = 1, no = 0) Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Thrift, saving money and things (mention = 1, otherwise =0) Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Determination, perseverance (mention = 1, otherwise =0) Could you please mention any that you would not like to have as neighbors? People of different race (mention = 1, otherwise =0) Could you please mention any that you would not like to have as neighbors? Immigrants/foreign workers (mention = 1, otherwise =0) Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Tolerance and respect for other people 11

12 public good Public good provision traduces provision the individual s behavior regarding to paying public or daily goods. equality WVS called equality the degree of justice regarding to similar situation (men s and women s incomes for instance) (mention = 1, otherwise =0) Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Imagination (mention = 1, otherwise =0) Please tell me for each of the following actions whether you think it can always be justified, never be justified, or something in between. Cheating on taxes if you have a chance (1 = never justifiable, 10 = always justifiable) Please tell me for each of the following actions whether you think it can always be justified, never be justified, or something in between. Avoiding a fare on public transport (1 = never justifiable, 10 = always justifiable) Here is a list of qualities that children can be encouraged to learn at home. Which, if any, do you consider to be especially important? Unselfishness (mention = 1, otherwise =0) How would you place your views on this scale? 1 means you agree completely with the statement on the left; 10 means you agree completely with the statement on the right; and if your views fall somewhere in between, you can choose any number in between. Incomes should be made more equal. Imagine two secretaries, of the same age, doing practically the same job. One finds out that the other earns considerably more than she does. The better paid secretary, however, is quicker, more efficient and 12

13 more reliable at her job. In your opinion, is it fair or not fair that one secretary is paid more than the other? (Fair = 1, Not fair =0) market orientation Market orientation corresponds to the market structure (level of How would you place your views on this scale? 1 means you agree completely with the statement on competitiveness and the left; 10 means you agree completely with the implication of the government, statement on the right; and if your views fall percentage of entrepreneurs somewhere in between, you can choose any number and private ownership ) in between. Competition is good. It stimulates people to work hard and develop new ideas. Private ownership should be increased. The government should take more responsibility to ensure that everyone is provided for. Imagine two secretaries, of the same age, doing practically the same job. One finds out that the other earns considerably more than she does. The better paid secretary, however, is quicker, more efficient and more reliable at her job. In your opinion, is it fair or not fair that one secretary is paid more than the other? (Fair = 1, Not fair =0) Questions from Gorodnichenko and Yuriy (2011) Table 3 cultural determinants of Hoftede s, Schwartz s, and World Values Survey s model Empirical evidence with cross sectional studies of the impact of culture on economic performance Gouveia and Ros (2000), and Gorodnichenko and Roland (2010, 2011) focus on the contrast between individualism-collectivism rather than Guiso, Sapienza and Zingales (2003, 2004, 2006, 2009) analyze culture as people s beliefs and preferences and Adam, Tabellini consider the variable trust. Trust is a variable that could be present in all classifications of cultures (individualism, collectivism, Hofstede s, 13

14 Schwartz s and WVS s model, strong and weak corporate culture ) and authors study the intensity of the level of trust around the world as a determinant of economic performance. Economic performance s variables and relation between the cultural dimensions of Hofstede and Schwartz Gouveia and Ros (2000) show the pertinence of studying the cultural variables and their impact on economic performance. The authors present an overview about the relevant variables used in this research field. The dependent variables refer to economic performance at a macro economic level such as Gross Interior Product-GIP- which captures the country s wealth generated by its primary, secondary and tertiary activities; Gross National Product-GNP- which indicates the wealth of a country after subtracting the rate of exports from that of imports; and the rate of inflation, which is relevant to show the extent to which an economy spends more than the internally available resources. Other dependent variables are macro social and concern the demographic and social development. Several variables compose this category and capture the health of a country and its social development such as: birth and death rates - which are the percentage of births and deaths per thousand inhabitants; fertility rate which is the average number of live of children per woman throughout their lifetime; population in the number of inhabitants per country; and population density that is, the distribution of population per km 2 of territory; Life Expectancy - the expected longevity at birth (a country with greater development allows greater life expectancy); Human Development - which indicates the degree of development of a country s social welfare, that is, education, employment, housing, and basic freedoms available to all citizens. Gouveia and Ros (2000) compare the two main models proposed by Hofstede (1980, 1984, 1991, and 1998), and by Schwartz (1990, 1992, and 1996) to explore the eventual positive correlation between cultural variables. The authors analyze their convergence through a study on 20 countries. They identify some positive correlations between Hofstede s and Schwartz s variables which are: individualism with affective and intellectual autonomy and power distance with conservatism. They use as dependent variables these macro social and macro economic variables: human development, Gross national product, life expectancy, population over 65 year-old, birth and death rate, and finally illiteracy rate. 14

15 The impact of culture as individualism-collectivism dimensions on economic performance is explained by Gorodnichenko and Roland (2010, 2011) Yuriy Gorodnichenko and Gérard Roland (2010, 2011) focus on the culture s characteristics that positively affect the economic performance such as innovation in their paper Culture, Institutions and the Wealth of Nations, 2010, and output per capita in their paper Which Dimensions of Culture Matter for Long-Run Growth?, Their general conclusion is that the individualism attributes have a bigger positive impact on innovation and economic performance than the other cultural determinant: the collectivism. In their article written in 2011, Yuriy Gorodnichenko and Gérard Roland achieve this conclusion by using three main international databases. Their regression model is ln ( Y i ) = α j Dim j,i + X i γ j + error, where i and j index countries and cultural dimensions, respectively, ln (Y ) is real GDP per worker from the Penn World Tables in 2000, Dim is a cultural dimension respectively to Hofstede, and Schwartz models and World Values Survey data, and X is a vector of controls (geographical and religious controls). From the Hofstede model, an extension of his initial survey was made in 2001 focusing on these Hofstede s cultural dimensions: Individualism, Power distance, Masculinity, and Uncertainty avoidance. The regression result without including control variables is ln(y i )=α+0.638***individualism-0.492***power_distance+0.063masculinit+0.168**uncertainty avoidance+ error. The individualism dimension is statistically significant and presents a considerable impact on output per capita. Thus when the individualism dimension is stronger by one point, the output per capita is higher by point. The second database used analyzes through Schwartz s classification of culture seven components which are harmony, embeddedness-conservatism, hierarchy, mastery, affective autonomy, intellectual autonomy, and egalitarianism. The result of the regression following Schwartz s model emphasizes on affective autonomy, intellectual autonomy, and egalitarianism characteristics of a culture and is presented below. 15

16 ln(yi)=α+0.235*harmony-0.748***embeddedness-0.422***hierarchy Mastery+0.7***affective_autonomy+0.675***intellectual_autonomy+0.426*** egalitarianism When affective autonomy increases by one point, the output per capita increases by 0.7 point. When intellectual autonomy increases by one point, the output per capita increases by point. When the degree of egalitarianism increases by one point, the output per capita increases by 0426 point. The third and last database is the best known regarding to the issues of cultural economics. Through the World Values Surveys (WVS), the authors, Gorodnichenko and Roland, run a regression by considering these following elements as relevant components of culture: trust, hard work and thrift, tolerance, public good provision, equality, and market orientation. In the regression s result, the two elements positively correlated with individualism are statistically significant. ln (Yi) = α+0.410***trust-0.063hard work and thrift+0.502***tolerance-0.074public good provision-0.376***equality-0.209market orientation. When trust increases by one point, the output per capita increases by point. When tolerance increases by one point, the output per capita increases by point. 16

17 To conclude this part, Yuriy Gorodnichenko and Gérard Roland,2010 construct an interesting map of individualism: score. World map 1 Source Yuriy Gorodnichenko and Gérard Roland,2010, page 36 This map allows a relevant contribution to the cultural economic study by locating the level of individualism around the world. People s preferences, beliefs and values analysis in cross sectional studies A sequel of papers of Guiso, Sapienza and Zingales (henceforth GSZ) (2003, 2006) starts by defining culture as those customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation. (GSZ, 2006, page 23). They focus on people s belief and preferences rather than previous authors deal with the duality individualism-collectivism dimensions. These authors Guiso, Sapienza and Zingales start their research by discussing the direction of the causal relationship. Does culture affect economy or on the other way around does economic performance influence culture? The causal relationship is determined by GSZ because of their definition. In other words, GSZ analyze culture as a determinant of economic performance because of the lack of study arguing that the impact of economic performance on culture. Also, Becker (1996, page 16) claims Individuals have less control over their culture than over other social capital. They cannot alter their 17

18 ethnicity, race or family history, and only with difficulty can they change their country or religion. Because of the difficulty of changing culture and its low depreciation rate, culture is largely a given to individuals throughout their lifetimes. In GSZ s 2004 paper, the authors focus on two attributes of the culture, which are the people s preferences and beliefs. These individual intangible elements are generated by religion and ethnic background, and studying them may contribute to the understanding of economic performance through databases and regressions. Using US data from World Values Survey and General Social Survey (GSS), they classify samples of the population according to the religion affiliations and ethnic group. Using the information generated by these surveys WVS and GSS, the authors Guiso, Sapienza and Zingales analyzes the level of social trust that people have. The regression includes control for religion affiliation, demographic control, education and social class between others. They found that religion contributes around 20% the level of social trust and a similar result is found for ethnic origin. All through the paper, the key element is the level of trust, since it allows understanding how property rights are established inside the market, therefore having a determining impact on the economic choices. They present two empirical exercises related to the importance of trust on international trade transactions at the level of trade in goods, financial assets and foreign direct investment (FDI). A second exercise is an enquiry on the extent to which the choice of becoming an entrepreneur is based on trust or not. Trust as a cultural determinant GSZ (2004, 2009) find that trust matters in international trades; a country tends to exchange more goods and financial assets when its economic agents trust the other country. Trust is defined by an index which captures the level of trust among the surveyed individuals. GSZ (2004) use data from WVS, a survey which includes 2,000 individuals in years 1990 and The question asked to the respondent was: "Could you tell me how much you trust other members of your society in general?: (5) Trust them completely (4) Trust them a little (3) Neither trust them, nor distrust them (2) Do not trust them very much (1) Do not trust them at all. 18

19 GSZ (2004) run regressions that predict economic performance through beliefs of trust and one of the regressions used is: Number of domestic firms over the population= log per capita GNP ** Trust Rule of Law. In GSZ (2009), the authors control for country s institutional characteristics (La Porta et al classifies the legal origin as French, German, Scandinavian, or English origin). Citizens in different countries could have similar legal systems and so they trust each other more because there is less fear of the unknown. Also, GSZ control for the differences in the information sets (due to geographical distance, lack of commonality between the two languages) and find that historical and cultural variables (indicators such as religious similarity, ethnic differences from Neolithic invasions in Europe: Asian and African invaders, wars) affect the trust in a way such that the propensity of the citizens of one country to trust the citizens of another country appears to be strongly affected. GSZ s (2009) article studies the impact of the culture on trade, portfolio investments, and FDI (Foreign Direct Investment). The model that measures the effect of trust on trade is the following: LogExport jit = K i * Year t +λ j * Year t +βtrust jit + δx ji + є jit, where Export jit is the export of country j in country i in year t aggregated over four-digit SITC Standard International Trade Classification i industries. Trust jit is the trust of citizens of country i for citizens of country j in the survey in year t, and X ji are bilateral-specific variables, which do not vary over time, such as distance; K j a country-of-origin fixed effect, λ j a country-of-destination fixed effect, and Year t calendar-year dummies. The mean trust of people in importing country to people in exporting country is around 0.36 point. So when the level of trust increases by one point the aggregate export volume from country increases by 0.36 point. On the other hand, the effect of trust on FDI is around 27%. Finally, their regression on the percentage of net portfolio investment of a given country into another country reveals that people s trust in country i toward people of country j increases the portfolio share of country i in country j by 3 percentage points, which corresponds to an 88% increase in the mean share. The probability to become an entrepreneur according to trustworthiness is also studied by GSZ (2004). In an economy, being an entrepreneur represents a key opportunity when the percentage of unemployment is high. As a consequence this issue is crucial in economies such as the Spanish or the French ones, where 19

20 the actual unemployment rate is respectively around 21% and 10% (as of July 2011). From the General Social Survey, the authors determine by this following regression with this dependent variable: the probability of being self employed. This probability increases by 14% point when the social trust increases by one point. Being self employed= α trust respondent is male respondent is white age of respondent -0.0 age of respondent squared education education squared Databases used in cultural economics issues: comparison and application The relevance of surveys and databases is discussed by Adam (2006). He stresses the four possible issues about trust as a social capital that is considered as a proxy variable of culture, and about the quality of the three main databases called World Values Survey (WVS), European Values Survey (EVS), and European Social Survey (ESS). He suggests the need of triangulation results that consists of comparing the results obtained by one database with the results generated in the same analysis by using the two other databases. A divergence in the regression results affects the quality and credibility of the authors final conclusion. These differences are explained by Adam (2006) through several points such as the questions included in the surveys, the translation of original question, the legal system, and the reference of the period of time. As an example of this methodological problem: three answers about trust resulting from the following three different answer scales do not converge. WVS-1990 until 2000 European Value Survey-1990 V-94 Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people? 1 Most people can be trusted 2 Can't be too careful 9 Don't know WVS-2005 V23. Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people? (Code one answer): 1 Most people can be trusted 2 Need to be very careful. GSS-2010 TRUST5: Categorical (Single) Generally speaking, would you say that most people can be trusted, or that you can t be too careful in dealing with people? Please tell me what you think, where 1 means you can t be too careful and 5 means most people can be trusted. 20

21 1 You can t be too careful Most people can be trusted 6 Can t choose DON'T KNOW REFUSED According to Adam (2006), several conclusions about trust can exist because the authors use distinct four possible ways to deal with. Firstly: trust connects macro-level research into civil society and civic participation with social capital indicators like associational involvement and trust and generalized trust indicates the readiness of an actor to enter into communication and co-operation with unknown people like strangers. Secondly, trust as social capital is an additional tool which allows the circulation and sharing of knowledge. Thirdly social capital is perceived as a determinant of network analysis. And finally trust is considered as a solution of the free rider problem. Also, time plays a relevant role. For instance, the period of time when the surveys were conducted and the reference of period of time in the questions change the answers and so the results of the regressions and the conclusions of the authors and their contributions to their research. However, it is also true that many authors consider cultural institutions as being relatively stable through time. The other reason to explain the divergent results found by the author Adam (2006) could be the quality (i.e. reliability) credibility and comparability of answers, with issues such as measurement like dichotomous item or scale (eleven-scale) playing a potential distorting role. The other difficulty to obtain homogenous data originates in the translation of surveys from an Anglo-Saxon culture and language to another culture (and so a distinct interpretation of the question). The misinterpretation occurs because of the context; for instance the legal system is not the same, the meaning of a same word is not the same (the feeling of perceptions and beliefs is subjective) and in some countries the legal system imposes a social obligation such as the voluntarism. If the voluntarism participation is a legal obligation then the question is misunderstood, as when Swedish citizens say I don t spend my time in voluntary organizations. If voluntarism is a proxy variable of trust in one database and for the two other ones the proxy variable for trust is on one hand a dichotomous question and on the other hand a nine item one (such as Do you 21

22 believe in the other people s actions? ) the three results are not comparable and do not allow a homogenous contribution to the research. Adam (2006) presents this distortion by taking into account three common variables and the classification of countries according to their level of trust done by the three databases (European Value survey, 1999, European Social Survey, 2002, using a mean score on a scale from 6-10, and European Social Survey, 2002, using a mean score on a scale from 0-10). In most cases, the values in the ESS are higher than the values in the EVS because of the different scaling and calculation used. As a consequence, in the EVS ranking, Spain is the fifth country with the highest level of trust and Great Britain, Greece and France are one of countries with the lowest level of trust. In the database ESS 2002 using a mean score on a scale from 0-10, the ranking changes and at the bottom there are Spain and Greece and at the fifth and ninth rank there is respectively Great Britain and France. The three common variables used in this study are: generalized trust, membership in voluntary organization, and unpaid work in voluntary organizations, and the following table summarizes his findings: Table 3 Summary about the classification of countries according to the level of trust, by Adam (2006) 22

23 The main conclusion through this table is the very high level of trust in Nordic countries and the low and very low level of trust in some powerful countries of Europe such as France, and Germany. Spain, Italy, have a low level of trust and Greece, Portugal have a very low level of trust. It is interesting to see the high level of trust in Ireland. Also, Tabellini (2008), by using data generated by WVS, reports the countries level of trust and respect in a world map. He locates several levels of trust and respect as follows: World Map 2 of trust and Respect level, proposed by Tabellini (2008) The level of trust and respect is strictly inside (0,1), that means more the index is closed to 0 (1) more the level of trust and respect is very low (high). Here, 1 corresponds to the reference country with the highest level of trust and respect: Sweden. This map indicates a very low level of trust and respect in Brazil and Algeria. A low level of trust and respect is mainly present in Latin America, Pakistan, Africa and the Balkans. A medium level of trust and respect is in south of Europe (Portugal, Spain, France, Italy) and Russia. A high level of trust is in Anglo Saxon countries (USA, UK, Australia, Canada), and Philippines. Most of studies conclude that Finland and Sweden are the countries with the highest level of trust and 23

24 respect. After presenting the variable of culture and economic performance, in the following part, the impact of culture on economic performance is studied. Empirical evidence at a micro level (Business and Institutional levels) of the impact of culture on economic performance In this part, a literature review presents the cultural impact on economic growth through trust in large organization, through corporate culture on business performance, and through people s values and beliefs as driver of institutional change. La Porta, Lopez de Silanes, Shleifer and Vishny (1997), start to study the economic payoff of trust in their article trust in large organizations. The issue about corporate culture and business performance is presented by Schein s (1992), Adkins and Caldwell s (2004), and Kotter and Heskett s (1992) work. North (1990) in his book Institutions, Institutional change and economy performance defines culture as a driver of institutional change. Williamson (2000) proposes a framework with four levels of social analysis that show at the level 1 the informal constraints of norms, values and informal institutions. La Porta, Lopez de Silanes, Shleifer and Vishny, 1997, start by studying the economic payoff of trust in their article trust in large organizations. Their results support the conclusion reached by Putnam (1993), and Fukuyama (1995). La Porta et al. (1997) associate trust with social capital and define this concept as a determinant of performance of a society s institutions, (La Porta et al. (1997, page 333). Fukuyama (1995) argues that high trust among citizens accounts for superior performance of all institutions in a society, including firms. Putnam (1993) conceives trust in the way which was lately proposed by La Porta et al. (1997) and concludes that the Catholic Church by imposing hierarchical structure on the society has discouraged the formation of trust. La Porta et al. (1997) demonstrate through a cross country analysis the positive and significant impact of trust on government efficiency (efficiency and integrity of the legal environment, and corruption) bureaucratic quality (political strengths- autonomy and regularization- and tax compliance), participation (population involvement as a member of a group), large organizations (sales performance), and social efficiency (infrastructure quality, health, education, GDP growth within a population). Their main conclusions are that trust promotes cooperation, trust social capital- is significantly and positively 24

25 correlated with large organization s performance, and that the level of trust is not strongly negatively affected by heterogeneity of ethnicity. Moreover, cooperation is all the more sustainable when horizontal ties among the population are established. Networks are likely to be destroyed by the influence of the dominant vertical religion hierarchy. Also, strong family ties have a negative impact on the large organization s performance. Trust plays a major role within large organizations, because their members infrequently communicate (individualist organizational culture with few joint productions). Each worker needs to work quickly, in an efficient and effective way. Trust contributes to facilitate the understanding of the relationship and so allows better and quicker outcomes (quality of production, sales performance, profit level ). The importance of trust in large organization is considered as one employee s values of the corporate culture. Corporate culture is the total sum of the values, customs, traditions, and meanings that makes a company unique. Where culture is strong employees trust the corporate management, and so do things how it is expected to be done. In this context, employees are more willing to work in team work, more motivated, loyal, innovative and involved in their tasks because the performance of the company is perceived as the value of their work. This corporate culture helps to support a change (product orientation, chief executive, merger process, new challenges ) to support internal communication of corporate goals, strategies and planning strategies, and values (Schein (1992). Additionally, Adkins and Caldwell (2004) find that job satisfaction is positively associated with the employment involvement, low turnover and absenteeism. A study done in 2003 by Harvard Business School reports that culture has a significant impact on an organization s long-term economic performance. A study done in 2002 by Corporate Leadership Council finds that cultural traits such as risk taking, internal communications, and flexibility are some of the most important drivers of performance, and may impact individual performance (creativeness, innovativeness, productivity). IBM, Hewlett-Packard, Proctor and Gamble, and McDonald's are an example of the positive effect of corporate culture on economic performance. According to Kotter and Heskett (1992), organizations with adaptive cultures perform much better than organizations with unadaptive cultures. An adaptive culture translates into organizational success; it is characterized by managers paying close attention to employees, and customers, initiating change when 25

26 needed, and taking risks. An unadaptive culture can significantly reduce a firm's effectiveness, disabling the firm from pursuing all its competitive/operational options. This point provides additional arguments about the importance of trust and other employees values in large structure. In their literature review, Stephen and Van Hemmen (2005) by citing La Porta et al. (1997), and North (1990) recall on the existing links between the level of trust and the need of efficient institutions. In fact, La Porta et al. (1997) explain that a result of a dysfunctional institution is a society confronted to a hierarchical religion and a distrust situation. North (1990) in his book Institution, Institutional change and economy performance defines institutions as a way to reduce uncertainty and make it possible to capture gains from trade. Culture plays a role of determinant of economic performance because trust can contribute to institutions enforcement; and, as it has been previously shown, avoiding uncertainty is an attribute of culture in Hofstede s model. When social and economic rules are driven by informal institutions (i.e norms of behavior, societal codes of conduct, social values), and also when the rules are formal (i.e laws), rules are better enforced and accepted by the society. Thus, the values contained in the institutions provide a basic reference to members of society by enforcing structure, order and attempting to reduce uncertainty in trades and to improve economic performance of the group. Norms and Values strength North considers culture as a driver of the choice of politic and legal institution form. North D.C. (2005), in a book entitled Understanding the Process of Institutional Change presents how an institution changes by the following circular framework. In fact, the perception of reality by members of society is contrasted with their beliefs (proxy variable of culture). As shown in the following framework, when these two dimensions do not fit, the members of a society promote changes in Institutions. Graph 2 Representation of the culture as a determinant of institutional changes. 26

27 Williamson, 2000, proposes another framework with four levels of social analysis. The first level starts by dealing with informal elements that constraint the institutional environment which enforces formal rules. The informal constraints are the society members norms, values, symbolic values and informal rule like sanction, informal pressure provided by social obligations. Williamson claims that understanding better how informal institutions arise will help to understand the slow changes in the informal constraints on the institutional environment. The institutional environment enforces formal rules such as constitution, laws, and property rights. The institutional environment is influenced by the path dependency, and operated through the existing legal system. Williamson proposes an issue to reduce the informal institutions. He thought that avoiding incomplete contract can be a solution against informal contracts and thus informal institution. One obstacle remains in this process that is the impossibility to enforce a complete contract dealing with all possible contingencies. This impossibility could result from the cost or the difficulty to analyze all the possible contingencies. Williamson writes (2000, page 601) the appropriate way to model incomplete contracts remains controversial. How institutional changes influence the economic performance? According to North (1990), and Williamson (2000), the institutional changes result from people s beliefs and values. The institutional evolution aims reducing transaction cost, improving labor force condition and social well being, health and wealth. All these factors aim to affect positively economic performance. The implications of the cultural transmission on the economic agent s decisions as citizen and consumer The papers of Bisin and Verdier (2001) cultural transmission is about the interaction between direct vertical socialization" and Oblique and horizontal socialization. Fernández, Fogli and Ottavianni (2003) find empirical evidence about the cultural transmission in the labor force participation for high skill women. Guiso, sapienza, and Zingales (2007) show that the intergenerational transmission of priors about the trustworthiness of others tends to be biased toward excessively conservative priors. To go deeply in the 27