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The correlation between human capital and morality and its effect on economic performance: Theory and evidence

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  • Balan, David J.
  • Knack, Stephen

Abstract

In this paper we analyze the relationship between the correlation between morality and human capital (“ability”) on the one hand and aggregate economic performance on the other. Morality is defined as an aversion to consuming goods obtained through appropriative rather than productive activities. In our empirical analysis we adapt the well-known regression framework of Rodrik et al. (2004), using the World Values Survey as a source of proxies for morality. Using our preferred proxy, we find evidence that higher within-country correlation between morality and ability, holding constant the levels of morality and ability, increases per-capita income levels. Under our preferred specification, a one-standard-deviation increase in the correlation between morality and ability raises the log of per-capita income by about one-fourth of a standard deviation, equal to approximately $3600 for the median income country in our sample. Results are robust to correcting for endogeneity and to changes in sample and specification. Results are mixed when we use alternative morality proxies, but the coefficient on the morality–ability correlation is still usually positive and statistically significant. We also develop a simple static general equilibrium model to serve as a possible framework for understanding the empirical results.

Suggested Citation

  • Balan, David J. & Knack, Stephen, 2012. "The correlation between human capital and morality and its effect on economic performance: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 457-475.
  • Handle: RePEc:eee:jcecon:v:40:y:2012:i:3:p:457-475
    DOI: 10.1016/j.jce.2011.12.005
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    Cited by:

    1. Harvey S. James Jr., 2015. "Generalized Morality, Institutions and Economic Growth, and the Intermediating Role of Generalized Trust," Kyklos, Wiley Blackwell, vol. 68(2), pages 165-196, May.
    2. Masakure, Oliver, 2016. "The effect of employee loyalty on wages," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 274-298.
    3. Breuer, Janice Boucher & McDermott, John, 2013. "Respect, responsibility, and development," Journal of Development Economics, Elsevier, vol. 105(C), pages 36-47.

    More about this item

    Keywords

    Morality; Appropriation; Rent-seeking; Economic development;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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