Economic growth and cultural change

Abstract

The paper contributes to the interpretation of annual growth rates based on the effect of the basic growth factors (capital, labour, human capital) and the cultural background as part of the “remaining factors”. It uses a series of variables to express these effects, which are analysed with a principal component analysis and a regression analysis, in the context of a Solow–Romer augmented growth framework. Cultural background variables are divided in two main groups: “Efficiency Orientation” and “Social Orientation” variables. We formulate the hypothesis that within the well-known growth framework “Efficiency Orientation” variables significantly affect economic growth, while “Social Orientation” influences are unpredicted in principle. The results confirm that cultural background positively affects annual growth rates. However, “Social Orientation” plays the main (positive) role. Furthermore, performing a sensitivity analysis on the cultural background, the conclusions confirm that cultural background has a strong interpretive role in annual growth rates. The deterioration of the “Social Orientation” cultural background negatively affects annual GDP growth. The paper points the crucial explanatory power of the “Social Orientation” cultural background for annual growth rates.