85501 - Institutions, Culture and Economic Development

Learning outcomes

Formal institutions matter for both the long-term growth performance and the development path of a country, in that they shape the incentives of different actors in a society. Informal institutions or culture determine the rise and persistence of institutions across countries. Taken together, culture and institutions are the results of endogenous choices. They are influenced by geography, technology, epidemics, conflicts, history, as well as unexpected exogenous events. Objectives of the course are: to discuss the fundamental causes of international differences in income, to provide understanding on the role of the differences in formal institutions across developed and developing countries, to explain the impact of the interaction between institutions and culture on long-term economic change, to discuss the causes of the preferences for the redistribution of income and its relation to poverty, to provide insight on the inner incentives for innovation. The course will touch upon the following questions and topics: What are the fundamental causes of income differences among countries? Why do formal institutions differ across devoloped and developing countries? How do culture and institutions interact? How do values and beliefs affect the rise of institutions? What is the relation between preferences for redistribution of income and poverty? How to measure ‘culture’ in the context of development studies? Individualism and collectivism: what is their impact on the preferences for innovation? What role for culture in financial institutions?

Course contents

The course will focus on the following topics:

• What determines the economic performance of a country over the long run?
  • The ‘reversal of fortunes’ of Latin American countries and the role of institutions
• Institutional economics: a framework of analysis for ‘formal’ and ‘informal’ institutions
  • The role of institutions for long-term economic development
  • Exchanges and transaction costs in a market economy
    • Do cultural biases affect economic exchange?
      • The role of ‘cultural proximity’ and ‘trust’
• Does culture affect economic outcomes?
  • How do we measure ‘culture’?
• Culture and ‘institutions’: a two-way causal relation?
  • What are ‘institutions’?
  • Culture, politics and political regimes
  • Religious values and institutions
• The culture of ‘work’ and the social preferences for income redistribution
• What is ‘social capital’?
  • Why is it generally important in economics?
  • Why is it important in finance?
• Family ties and economic behaviour
  • Culture, the family, and the labour market
• Corporate culture vs ‘societal’ culture

A clear distinction will be made between economic theories (i.e. the unobserved determinants of economic phenomena) and empirical facts (i.e. observed data from economic history) that allow theoretical hypothesis to be tested in macroeconomic analysis.

Readings/Bibliography

All the topics discussed during the lectures are presented in a number of scientific papers that have contributed to a growing research agenda. At the beginning of the course, the lecturer will provide the students with the reading list pack. This will include also a set of slides for each topic.

 

The following papers provide the building blocks for the literature of the course:

Alberto Alesina and Paola Giuliano, “Culture and Institutions”, NBER Working Paper, No. 19750, December 2013.

Daron Acemoglu and Simon Johnson, “Unbundling Institutions,” Journal of Political Economy, 113, pp. 949-995, 2005.

Daron Acemoglu, Simon Johnson, and James Robinson, “The Colonial Origins of Comparative Development: An Empirical Investigation,” American Economic Review, 91, pp. 1369-1401, 2001.

Daron Acemoglu, Simon Johnson, and James Robinson, “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” Quarterly Journal of Economics, 117, pp. 1231-1294, 2002.

Daron Acemoglu, Simon Johnson, and James Robinson, “Institutions as a Fundamental Cause of Long-Run Growth,” Chapter 6 in: P. Aghion and S. Durlauf (eds.), Handbook of Economic Growth, Vol. 1A, pp. 385–472, 2005.

Douglas C. North, “The Role of Institutions in Economic Development”, United Nations Economic Commission for Europe, Discussion Paper Series, No. 2003.2, October 2003.

Gani Aldashev and Jean-Philippe Platteau, “Religion, Culture, and Development”, in Handbook of the Economics of Art and Culture, vol.2, eds. V. Ginsburgh and D. Throsby, Elsevier, pp. 587-631, 2014.

Gani Aldashev, “Legal Institutions, Political Economy, and Development”, Oxford Review of Economic Policy, 25(2), pp. 257-270, 2009.

Marcus Noland, “Religion, Culture, and Economic Performance”, Institute for International Economics Working Paper 03-8. Washington: Institute for International Economics, 2003.

Paul Milgrom, Douglas North, and Barry Weingast, “The Role of Institutions in the Revival of Trade: The Law Merchant, Private Judges, and the Champagne Fairs,” Economics and Politics, 2: 1-23, 1990.

Paola Giuliano and Alberto Alesina, “Family Ties and Political Participation”, Journal of the European Economic Association, 9 (5), pp. 817-839, October 2011.

Timur Kuran, “Islam and Underdevelopment: An Old Puzzle Revisited”, Journal of Institutional and Theoretical Economics, 153:1, pp. 41–71, March 1997.

 

Additional papers may be considered during the course based on the interaction and feedback from the students. 

Teaching methods

The course will consist in a set of standard lectures.

The classes will provide the opportunity both to facilitate the interaction between the lecturer and the students, and to stimulate the debate among students themselves. In this sense, class attendance is critical to take full advantage from an in-depth discussion on the course topics.

Assessment methods

A distinction is made between the students who attend at least 80% of the lectures of the course (i.e. attending student), and those students who do not (non-attending students).

Non-attending students will take a standard written exam with open questions on the study material. The exam will last 3 hours.

• The study material will be based on the articles that can be downloaded from this section.
• The grading criteria are explained here below.

The study material for non-attending students can be downloaded from a specific thread on the Virtuale page for the course.

Attending students will take 3 mid-term exams based entirely on the papers and slides discussed during the lectures. Please notice that this material may be different from the compulsory readings for the non-attending students.

There will be 2 written tests on the papers covered during the first and the second part of the course.

• Each test will focus only on the notions and ideas presented in class in each part of the course.
• The second test will not include questions from the first part of the course: it will be based entirely on the materials from the second part.
• These will be 'tests' in the sense that the student will be able to choose among three possible options for an answer.
• There will be 16 questions per test.
• Each test will take 60 minutes to complete.
• A right answer will earn the student 1 point.
• The sum of the points earned in both tests will form the basis for the final grade.

At the end of the course, the students who have attended the lectures will be asked to write a short opinion piece on a topic relevant for the course.

• All the available resources - whether online or in printed form - may be used while preparing the piece.
• A student can earn up to a maximum of 5 points from writing the opinion piece.
• The students will have up to 1.5 hours to finalize the opinion piece.

The final grade for attending students will consist in the sum of the points obtained from the tests and the opinion piece.

The study materials (papers + lecture slides) for the course-attending students will be made available in clearly-marked threads on the Virtuale page of the course. They will be shared during the course as the lectures take place.

 

Grading criteria for the written exam of non-attending students

The written exam will be based on answers to six questions. The final grade will consist of the sum of the grading points obtained for each answer.

The grading criteria for each answer are the following:

• consistency (i.e., whether an answer does reply to the specific question at hand)
• relevance (i.e., how deeply an answer addresses the core point of a question)
• completeness (i.e., whether all the important points are discussed by an answer)
• logic (i.e., whether an answer outlines the reasoning that stands behind it, or why a certain answer is provided)

A deep understanding of the topic, evidence of critical reasoning, an effort to discuss the relevant aspects of a topic and to explain the economic intuition will lead to a final mark within the range 5-6 points for an answer.

A demonstration of mild understanding about the question topic, along with a unsatisfactory evidence of logical reasoning limited efforts to discuss both the relevant aspects of a topic, and to explain the economic reasoning will be evaluated with a mark in the range of 3-5 points for an answer

A limited understanding of the question topic, coupled with below-average logical skills, inconsistent efforts both to discuss the relevant aspects of a topic and to explain the economic reasoning will lead to a mark in the range of 1-2 points for an answer.

Evidence of a complete lack of understanding about the topic, inadequate logical skills and the demonstration that there are no efforts to discuss the relevant aspects of a topic will lead to a 0 point mark for an answer.

 

Grading criteria for the written opinion piece by attending students

The opinion piece will include a statement by the teacher. A comment on the statement will be required. No limit on the number of pages will be imposed. The student may use any material in order to prepare the piece.

In short: the opinion piece will give a student the opportunity to apply the scientific theories, ideas and notions learnt during the course to a specific case.

The grading criteria are as follows:

• consistency (i.e., whether the text of the piece addresses the scientific topic raised by the statement)
• relevance (i.e., how deeply the piece addresses the core scientific point of a statement)
• logic (i.e., whether an answer outlines the reasoning that stands behind it, or why a certain statement is provided)

A maximum number of 5 points can be obtained from writing the opinion piece.

 

General questions

Can an attending student be assessed as such, in the way outlined in this document, after the course has ended? NO.

Can a student attend the course and take the exam as a non-attending student? YES.

Is writing the opinion piece compulsory for all the attending students? YES.

Can a student obtain a negative number of points on the piece? NO.

Can a non-attending student obtain a negative number of points on the answers for a written exam? NO.

Teaching tools

The students who attend the course will be provided with a 'paper pack' including all the scientific articles, and set of slides for each lecture topic.

These materials will be made available on the Virtuale page for the couse.

Office hours

See the website of Paolo Zagaglia