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Introduction to Modern Economic Growth Such a study will not only help us understand why some societies choose or end up with institutions that not encourage economic growth, but will also enable us to make predictions about institutional change After all, the fact that institutions can and change is a major difference between the institutions hypothesis and the geography and culture hypotheses Questions of equilibrium institutions and endogenous institutional change are central for the institutions hypothesis, but we have to postpone their discussion to Part For now, however, we can note that the endogeneity of institutions has another important implication; endogeneity of institutions makes empirical work on assessing the role of institutions more challenging, because it implies that the standard “simultaneity” biases in econometrics will be present when we look at the effect of institutions on economic outcomes In this chapter, we will focus on the empirical evidence in favor and against the various different hypotheses We will argue that this evidence, by and large, suggests that institutional differences that societies choose and end up with are a primary determinant of their economic fortunes The further discussion below and a summary of recent empirical work will try to bolster this case Nevertheless, it is important to emphasize that this does not mean that only institutions matter and luck, geography and culture are not important The four fundamental causes are potentially complementary The evidence we will provide suggests that institutions are the most important one among these four causes, but does not deny the potential role of other factors, such as cultural influences 4.3.4 Culture The final fundamental explanation for economic growth emphasizes the idea that different societies (or perhaps different races or ethnic groups) have different cultures, because of different shared experiences or different religions Culture is viewed, by some social scientists, as a key determinant of the values, preferences and beliefs of individuals and societies and, the argument goes, these differences play a key role in shaping economic performance At some level, culture can be thought of as influencing equilibrium outcomes for a given set of institutions Recall that in the presence of multiple equilibria, there is a central question of equilibrium selection For example, in the simple game discussed above, will society coordinate on the high-investment or the low-investment 175