Economic growth and economic development 173

Introduction to Modern Economic Growth they are social choices While laws and regulations are not directly chosen by individuals and some institutional arrangements may be historically persistent, in the end the laws, policies and regulations under which a society lives are the choices of the members of that society If the members of the society collectively decide to change them, they can change them If institutions are a major fundamental cause of economic growth and cross-country differences in economic performance, they can be potentially reformed so as to achieve better outcomes Such reforms may not be easy, they may encounter a lot of opposition, and often we may not exactly know which reforms will work But they are still within the realm of the possible, and further research might help us understand how such reforms with affect economic incentives and how they can be implemented By culture, we refer to beliefs, values and preferences that influence individual economic behavior Differences in religious beliefs across societies are among the clearest examples of cultural differences that may affect economic behavior Differences in preferences, for example, regarding how important wealth is relative to other status-generating activities and how patient individuals should be, might be as important as or even more important than luck, geography and institutions in affecting economic performance Broadly speaking, culture can affect economic outcomes through two major channels First, it can affect the willingness of individuals to trade-off different activities or consumption today versus consumption tomorrow Via this channel, culture will influence societies’ occupational choices, market structure, saving rates and their willingness to accumulate physical and human capital Second, culture may also affect the degree of cooperation among individuals, and as we will see later in the book, cooperation and trust can sometimes play an important role in underpinning productive activities and thus affect the growth performance of societies There is a clear parallel between institutions and culture Both affect individual behavior and both are important determinants of incentives Nevertheless, a crucial difference between the theories put into these two categories justifies their separation: while institutions are directly under the control of the members of the society, in the sense that by changing the distribution of resources, constitutions, laws and policies, individuals can influence the institutions under which they live, culture is a 159