INTRODUCTION

It can clearly be seen that economic differences exist among nations. While some countries
are successful in achieving growth and are said to be rich, some remain poor. While some
economies generate enormous wealth, some suffer poverty. What lies behind these
differences? Economic growth and sustainable development are accepted to have ‘economic’,
‘social’ and ‘environmental’ dimensions; with giving more importance to economic one. Aim
of this paper is to emphasize on the fourth dimension, ‘culture’, that economists or researchers
are usually being reluctant about explaining. Not the whole, but economists generally
undervalue the effect of culture and they take technical progress, accumulation of factors of
production, etc. as key determinants of economic performance. The role of culture on
economic performance is considerable in enlightening the differences among different
societies and it may be one of the important key determinants of economic performance. It is
advocated that if there is a healthy and strong cultural community in a nation; that nation
exhibits more ability in growing and competing internationally.

Culture is said to be the fruit of human civilization. It is a way of life and a system of conduct;
it is immaterial, but it also contains material objects that are related to human activity. It is not
isolated from history and societal progress. It is cumulative and continuous: it doesn’t belong
to a unique generation, its influence is carried over through generations and it is transmitted
from one generation to another. One of the basic definitions of culture is “shared values and
beliefs” (Casson and Godley, 2000); meaning that culture forms values, creates attitudes and
influences behaviour. Culture is learned, shared, transgenerational, symbolic, patterned and
adaptive according to Hodgetts, Luthans and Doh (2006). Besides, according to Bocock
(1992), culture is defined as “distinctive way of life, shared values and meanings common to
different groups and historical periods”. In this definition, it is asserted that cultures vary from
one society (or one social group) to another as common meanings they share are different
from those another group members share. Furthermore, Triandis (2000) stresses on the norms
and beliefs as cultural syndromes and explains that: “culture is to society what memory is to
individuals. It refers to tools and ideas that are shared and transmitted to succeeding
generations because they were once practical at some point in time”.
There is a thought that cultures are older than states, they are timeless. On the other hand, they
are dynamic, fluid and changing. Cultures are said to be old and young, simultaneously and
influence of other cultures, with which they contact, can be observed on them. Besides,
cultures are mostly transnational. Cultures geographically go beyond the territorial states’
boundaries. For instance, Arab culture in Middle East, Kurdish culture in Turkey

Iran, Iraq, Syria, etc. thus, sometimes they can hold risks and challenges for the states.

Belief is one of the components of culture and differences in beliefs and worldviews effect
economic organization. Same institutions are functioning very differently in different
environments; for example, in Southern and Northern Italy, the judicial system works
differently. This systematic difference results from different regional histories and the role of
culture on causing historical influence is noticeable. Since culture is thought to be a set of
beliefs, values, customs and traditions and considers a group together, group’s identity and
values shape the preference patterns of individuals’ and accordingly their economic behavior.
Culture may affect the group’ economic outcomes in three ways; 1.It may affect economic
efficiency: if shared values within the group are promoted, more effective decision-making
mechanism is set and being more adaptive to change and innovation is achieved; groups will
have good financial outcomes such as higher growth rates. 2. It may affect equity: if a moral
obligation is accepted about providing for future generation, this means an intergenerational
equity is being formed. 3. It may determine the social and economic objectives: culture affect
decides of the groups. Some cultural values of one society may target material progress while
another ones’ are entirely based on non-material goals.

Cultural infrastructure has very significant and determining effects on increasing of a

country’s welfare level, in other words, on its long-run economic growth. When looked to the
developing countries, it can be seen that their cultural infrastructure is more deficient
compared with developed ones. Thus, national, financial and human capital resources aren’t
being used efficiently and they aren’t being used in a way that provides maximum utility.
Problem of less-developed countries is not only ‘growth’, also ‘development’. Development
is growth plus ‘change’. Change in here can be either economic or social and cultural. Less-
developed countries are said to have social structure differences and problem arises from this
socio-cultural issue. Following part of this study will dwell upon the literature of cultural
variables that affect economic outcomes.

Backwards through origin of debate

Cultural approach was started by Max Weber and Alexis de Tocqueville; Max Weber (1904-
1905) in The Protestan Ethic and the Spirit of Capitalism and Alexis de Tocqueville in
Democracy in America (1840). Both mentioned about:

• Work is highly valued

• Adventurism and enterpreneurship

Also Adam Smith had mentioned about cultural values in the Wealth of Nations as sects
provide efficient allocation of resources and trust for contracts and to reduce uncertainty. In
addition to Adam Smith , John Stuart Mill(1843) had talked about cultural constraints power.

Karl Marx (1859) had claimed that rather than culture determines economic activity,
dominant economic structure shapes culture. Contrast to view of Weber to religion, crucial
role for development capitalism, Marx saw religion as a product of production relations.

Antonio Gramsci (1949) had built a synthesis between Marx and Weber, according to
Gramsci culture could not only determined by economic structure also by cultural hegemony
that was created by individual culturel values, political prefrences and influences of other
cultures.

After that Karl Pul Polanyi(1957) had created notion of “embeddedness “, which is used to
explain that economy is a part of society and culture where economy is embedded in.

After first step had been built by Weber and Tocqueville about cultural approach, second
wave of followers was seen at beginnings of 1960s such as Hoselitz (1960), McClelland
(1961) and Hagen (1962). According to them, traditional society is close to innovations that is
seen as engine of economic growth. And religious affiliation could serve base for institutions
and practices. By these instutions and practices innovations could be handled. Lal (1998)
stated that Buddhism and Jainism had a role of like this in ancient India.

By 1960’s age became a stage that early development economists appeared. Economists such
as Rostow(1960), Hoselitz (1958,1963) and Kuznets(1965) who had rediscovered cultural
approach.
Rostow generated six steps for explaining economic growth and first five of six are belonged
to individual nature.

1. Developing science

2. Appliying science to economic outcomes

3. Possibilities of innovations

4. Searching material advance

5. Consuming high quantity of goods

6. Controlling birth rate

McClelland contributed as generating notion of “ need for achievement” to culture and

development literature. The notion can be explained as a force about wanting to do well, with
respect to standards of excellence. “ need for achievement” is positively correlated with
independency of individuals. So he found a correlation between high need for achievement
and high growth rates of countries

Second school of thought that based on “sociability” for economic growth. This ecol has risen
above two important columns : “Trust” and “social capital”. Social capital refers to social
networks within soceity. That school of though based on thought of Edward Banfield and
George Foster.

Culture may have an effect on economic development through various channels:

• Law,morale,ethics and religion

• Consumer preferences

• Social capital

• Politics and governance

• İnstitutions and organizations

One of the important channels is religion, according to Landes (1999) Medieval Europe
was secular so wealth building and technological invention was belonged to the king. In
contrast, Islamic countries have no seperation between secular and religious. Weber
claimed that Protestan ethics were effective in worldy accumulation, commerce, valuable
working , trust, create organizations, saving and investments which were evolved sprit of
capitalism. Fukuyama (2003) stated that Catholic societies improved capitalism and were
wealthier earlier than the protestant countries. Hansen (1963) mentioned taht Weber’s
theory is in complete, because no clear link between religion and economic development.
And Weber ascribe scientific process to protestant view. Also Catholics were more
interested in science contrast to protestants who were concerned with applied science.
Protestants’ aim is generating tools and technology to make more productive working
skills. Weber was interested in rationality of behaviour that independent from actions
causality. It can be seen communism in Soviet Union or reformist Muslims in Indonesia.

Rigg (2002) investigated Buddhists’ contrubutions to economic development, and found

that Buddhism focus is acquiring and using wealth so Buddhism affect consumption and
consumer preferences. Buddhist economists find Western economics artificial bucause of
rational solutions to irrational human conditions.

Islamic economies included clear rules for economic life. And Islam is not only a religion,
is a way of living. (Rigg 2002) . Social security, think for others, a wealth tax and
immoral tax are indicators of Islamic view.

In Endonisia Islam caused to social development, Malaysia envolved Islamic statements

for promoting development by government. At the core of Islam, there is redistribution of
income rather than growth. Islamic economies have cultural autonomy since 1940s
(Chapra 2000). Teaching economic policy was limited in Iran and Pakistan.

Confucianism is a philosophy rather than religion (Hofstede and Bond ,1988) so it can be
said that many Asian countries has managed to achieve high rates of economic growth.

Barro and McCleary (2003) regressed variables of religion with economic growth for 59
countries. They found that church attandance caused a reduction in economic growth.
Increase in beliefs like heaven, hell and afterlife became reasons for increasing economic
growth. They conclude that believing is better than belonging. There is a negative
relationship between religious organization and economic growth. In contrast, individual
values has positive impact on economic growth.

Blum and Dadley (2001) searched for evidence that show Protestants worked harder and
saved more. They could not find any evidence through the statement. Protestants have
advantage of trade possibilities because they have strong information networks. They have
trust to foreigners so they can easily work with strangers and cantract with them.

Inglehart and Baker (2000) have an observation about trust and religion relationship
within Catholitics for 65 countries. The result is that no trust within Catholistics.

Guiso, Sopienza and Zingales (2006) seen religious affiliation influence on income
redistribution prefrences in USA.

Social capital is an important channel for culture to affcet economic growth as mentioned
above. One of fundamental economist , Fukuyama (1995) stated that economic activity is
functioning of a civil society. Also societies and countries different in ability to form and
develop organizations. Functional organization determines economic activity that
determine economic growth. Functional organizations must be productive and innovative
to provide economic growth.

Leonards and Nanetti (1993) social capital can improve the efficieny of a society.
Organizations’ efficiency based on Trust in society. If trust is observed within a society,
means that easy conditions to coorporate and form efficient organizations.

Fukuyama (1995) Trust provide that possibility to make decisions that are not profitable
in short term, however gives stability and economic rewards in the long term period.

Lack of social capital for example no trust situation, dos not mean that some societies and
culture can not manage economic growth. However they need different types of capital
and investments.

Lower social capital force to increase legal expenses such as lawyers and courts or state
have to play an active role for creating and owning large enterprises.

Dinda(2008) tried to find emprical evidence about trust linking to economic growth
through schooling. Scholling especially for poor people cause expansion in trust level.

He conluded that each extra year of schooling may provide additional growth rate for an
economy from 0.13% to 0.22 % through creating trust.
 Gambetta(2003) indicated that linkage between trust and economic performance also he
argues that turst means possibility of an agent asseses that another agent will perform a
particular action. This might thus be easier to intercorporate into economic models.

Roth (2009) state that hish trust provide reduction in transaction cost so that cause higher
production.

Guiso , Sapienza and Zingales (2006) point out that trust give advantage to person about
becoming entrepreneurs. Putnam, Leonardi and Nanetti (1993) summarizes linkage
between trust and economic performance into four branches:

1. it facilitates coordination and coorperation for mutual benefit

2. egoism is reduced

3. it solves collective action dilemmas

4. it reduced opportunism

Guiso , Sapienza and Zingales (2003) had studied how trust change in term of different
cultural variables. For example how trust is affactted by defition of a person about
himself/herself as being religious, it raises the level of trust by 19,6%.

At 2006, again Guiso, Sapienza and Zingales try to a relationship between an important
cultural issue: ethnic backround. Investigation result are like that ; Scandinavian backround
make trust higher and there is a positive correlation between level of trust for an ethnic
backround and trust level for actual country as 0,6. They conclude as, trust is cultural
component, both trust and culture transmit as heritage also there is a causality from culture
and trust to economic outcomes and not vice versa.

Although literature include many studies that show positive impact of social capital on
economic growth, there are examples of contrast view. At 1982, Olson argues that collective
act sometimes avoid applying of positive state reforms, people can develop organizations
which reduce economic efficiency. Also; Heliwell (1996) found and negative relationship
between trust and productivity increase within 17 OECD countries.

In add, Roth (2009) handled that economic growth is negatively related to an increase in trust.

Also for initial low level of trust countries, increase in trust cause economic growth while in
high initial level of trust countries face with reduction in economic growth because of
increase in trust level. So it can easily said that effect of trust on economic growth is
dimishing.

According to Ray (1998); in creating economic development, economic policy is a key

determinant. Different economic policies are applied by different countries and political
system choices of the countries can be determinants of economic policy. If it is accepted that
different states have different preferences of political system, effect of national culture may be
seen in here. It is argued by Landes (1999) that from early periods, European societies had a
cultural preference for democratic systems. Ancient Greeks were told to be inventors of
democracy and they were aware of the difference between free and unfree. On the other hand,
Arab and Asian societies were not similar to former ones and in China for example, autocratic
political systems were more tolerated. Guiso, Sapienza and Zingales (2006) discuss that many
cultural aspects have an effect on individuals’ preferences in political issues such as
competition, redistribution, social security programs, etc in USA. A positive correlation
between number of people believing that luck determines income and relative spend on social
welfare in that country was found by Alesina and Glaeser (2004). According to Huntington
(1991), Catholic, Orthodox, Muslim and Confucian societies are more resistant to change.