Nathan Nunn on Culture and Economic Development

What explains differences in income per capita across former European colonies? This question has important implications for our understanding of what causes economic growth. In a recent working paper, Nathan Nunn reconsiders two possible explanations.

Acemoglu et al. (2001) approached the question by noting that the former colonies which were most conducive to large-scale European settlement tended to experience more economic growth (e.g. Canada, New Zealand, the United States, and Australia). In such places, Europeans brought “institutions”—formal rules such as property rights and constraints on the executive—that promoted economic growth among the relatively large settler communities (the same cannot be said for indigenous communities, for whom the consequences of colonization were often disastrous). In places where European settlement was less viable, colonizers adopted more exploitative institutions—institutions that extracted wealth for a narrow elite and did very little to promote local economic growth.

Glaeser et al. (2004) offer a different take, suggesting that institutions were not necessarily the European settlers’ most important contribution to growth. “It seems at least as plausible that what they brought with them is themselves, and therefore their know-how and human capital.” In this view, the knowledge and skills of the settlers are primarily responsible for growth, which in turn enables improvements in institutional quality over time.

Nunn’s paper is a survey of work on the role of culture in economic development. He argues that once you account for culture—the beliefs and norms of a social group—the Acemoglu and Glaeser papers look less like competing explanations and more like complements:

Thinking about “rules” rather than “institutions” might help to clarify Nunn’s point. Rules are ideas about how to structure interactions among people. Rules come in two broad varieties: formal laws, such as “littering is illegal and punishable with a fine or jail time,” and informal social norms (what Nunn might call culture), such as the belief that “littering is wrong.” Someone who litters might be fined by the authorities for breaking the law or scolded and shunned by community members for violating a social norm.

As Nunn points out, norms are influenced by history and social interaction (vertical transmission of norms from parents to kids and horizontal transmission of norms from one member of a social group to another). As the littering example suggests, there is also an important interplay between norms and laws. Social norms against littering will support and reinforce anti-littering laws, greatly reducing the intensity of formal enforcement. In a social group where norms do not prohibit socially harmful levels of littering, formal enforcement efforts, perhaps in tandem with education, may change the equilibrium.

Nunn’s point is that part of a person’s “know-how” involves culture—a set of informal rules or norms that influence and are influenced by formal laws. If he’s right, then it is difficult to separate notions of “know-how” from notions of “institutions” because the two are closely intertwined.  Recasting “institutions” as “rules”—both laws and norms—might shed additional light on how laws, norms, technologies, and the scale of human interaction work together to affect economic growth.