A New Way to Measure Culture’s Effect on Economic Growth

The effect of culture on economic growth is evident, from the controversy over raising the retirement age in France, to the imbalances in the global economy caused by Chinese consumers’ propensity to save rather than spend.

But the cultural factors at play—values, codes of conduct, and other social norms—are difficult to measure empirically. One way around the problem may be by focusing on corporations and extrapolating up, according to research by Luigi Guiso of Einaudi Institute for Economics and Finance, Northwestern’s Paola Sapienza, and Chicago Booth’s Luigi Zingales.

This insight could inspire a new, data-driven approach to measuring the effects of culture on economic growth.

Corporations, the researchers argue, are easily studied microcosms of society. They have a distinct origin and a shorter timeline in which values and cultural shifts have evolved, unlike societies, where change can take generations. And, the researchers note, performance is far easier to measure in corporations, which regularly report the successes and failures of the whole as well as the individual components.

“While disentangling the effect of [cultural and legal-driven factors] is difficult in large societies, it can be done inside corporations,” they write. “Thus, corporate culture is not only interesting per se, but also as a laboratory to study the role of societal culture and the way it can be changed.”

Earlier research by Guiso, Sapienza, and Zingales identifies one aspect of corporate culture that correlates closely to company success: firms reported higher productivity and profitability, better industrial relations, and a higher level of attractiveness to prospective job applicants when their employees perceived management as trustworthy and ethical.

This echoes in society at large. The researchers point to past studies that suggest immigrants’ trust (or distrust) in others helps determine how much they participate in the stock market.

The researchers hope to spur new lines of inquiry about how to quantify culture’s impact on economic performance, using company values as a proxy for cultural norms—something to ponder next time you’re tempted to call in sick.