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Communism, Culture, and Financial Development

Author

Listed:
  • Alina F. Klein

    (University of Dubuque, Dubuque, IA 52001, USA,)

  • Rudolf F. Klein

    (University of Dubuque, Dubuque, IA 52001, USA)

Abstract

This paper analyzes the relationship between culture and financial development in Europe, with culture defined as informal constraints on human interactions. We assert that various national characteristics such as people's trust and trustworthiness, and the level of control they feel they have over their lives can modify transaction costs, which in turn leads to different levels of financial development. Furthermore, we consider communism as an exogenous shock to the cultural values existent in Central and Eastern Europe. This exogenous component of culture is negatively related to present financial development, even after controlling for other historical variables such as religion and formal institutions at the beginning of the 20th century. Via two-stage least squares regression analysis, we show that communism has shaped cultural values, which in turn affect financial development.

Suggested Citation

  • Alina F. Klein & Rudolf F. Klein, 2017. "Communism, Culture, and Financial Development," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 7(4), pages 575-589.
    • Handle: RePEc:eco:journ1:2017-04-67
    as

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    References listed on IDEAS

    as
    1. Aggarwal, Raj & Goodell, John W., 2010. "Financial markets versus institutions in European countries: Influence of culture and other national characteristics," International Business Review, Elsevier, vol. 19(5), pages 502-520, October.
    2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1231-1294.
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    Keywords

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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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