Making Sense of Institutional Change in China: The Cultural Dimension of Economic Growth and Modernization

Today, cultural explanations loom large in modern economic analyses of the divergent performance of nations, past and present, mostly related with central intermediating variables such as ‘trust’ or ‘social capital’ (survey in Guiso et al. 2006). However, it is often difficult to distinguish neatly between merely historical and specifically cultural explanations, because the notion of culture is mostly introduced without a clearly elaborated theoretical foundation (Herrmann-Pillath 2010). In particular, it is difficult to distinguish neatly between cultural explanations and theories about institutional legacies (for example, Djankov et al. 2003). In current economic analyses, culture appears to be a certain general property of certain populations that directly affects individual behavior and that is inherited from earlier generations via cultural transmission, and often checked empirically via population-of-origin dummies in the econometric models. However, this would also apply for institutional legacies in general (especially informal ones, which are partly independent from the formal institutions prevailing at a certain time and place). Hence, most of this research is not based on a fully fledged theory of culture, especially with reference to the relation between micro-level transmission mechanisms and aggregate phenomena, which are normally in focus when talking about ‘cultures’ in anthropology and sociology (for related methodological troubles in social capital research, see Durlauf 2003).