Cultural diversity, geographical isolation, and the origin of the wealth of nations

 
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Since the Industrial Revolution, the disparity in per capita income between the richest and poorest nations has increased many times over, and the economic leaders of the prior agricultural era did not necessarily become powerhouses in the next chapter in global development. What caused this great transformation of the world income distribution?

One school of thought holds that divergent patterns of acculturation have contributed to these reversals of economic fortunes over the last 200 years, but little empirical research exists pertaining to the role of assimilation versus multiculturalism — and to what extent each has been to the benefit or detriment of economic progress.

A 2011 paper for the National Bureau of Economic Research, “Cultural Diversity, Geographical Isolation and the Origin of the Wealth of Nations,” examines the process of development and why it differs across societies. The researchers, based at Williams College and Brown University, sought to better understand the relationship between cultural diversity and the ebb and flow of economic growth.  Using a complex empirical strategy, they test the theory that assimilation benefits societies in the stagnant agrarian epoch, while diversity aids societies in their transition to industrial growth economies. The researchers also compare their theoretical models with wide-ranging examples, from ancient China and Islamic civilization to 16th- and 17th-century Europe.

The study’s findings include:

  • A greater degree of diversity increased standards of living in the industrial era, using the year 1960 as a benchmark.
  • Cultural homogeneity had a positive impact on economic development before the Industrial Revolution (using the year 1500 CE as a benchmark), but is associated with a decrease in per capita income in 1960.
  • “Societies that were geographically less vulnerable to cultural diffusion bene…fited from enhanced assimilation, lower cultural diversity, and more intense accumulation of society-speci…fic human capital, which permitted them to fl‡ourish in the technological paradigm that characterized the agricultural stage of development. However, the lack of cultural diffusion and its manifestation in cultural homogeneity and rigidity diminished the ability of these societies to adapt to a new  technological paradigm, thereby delaying the onset of their industrialization and, thus, their take-off to a state of sustained economic growth.”

These findings support the theory that assimilation increased society-specific human capital, which helped societies become more efficient at exploiting the existing technological frontier. But as the technological frontier advanced during the Industrial Revolution, diverse societies were better able to adapt to these changing conditions and therefore were better positioned to experience sustained economic growth.

Tags: technology, economy

Last updated: November 29, 2012

 

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Citation: Ashraf, Quamrul; Galor, Oded. "Cultural Diversity, Geographical Isolation, and the Origin of the Wealth of Nations," National Bureau of Economic Research, December 2011, working paper 17640.