The interaction of individual values and sticky formal institutions in economic development

This paper intends to take a step towards improving our understanding of how culture affects economic development. Relying on the theory of institutional stickiness (Boettke et al. 2008), the main hypothesis is that the "deep" cultural layer (proxied by individual values) interacts with the stickiest formal institutions in development, which leads to a very special "stuck-together" phenomenon. The aim of the paper is to investigate this specific effect empirically, and show the genuinely unique role of individual values in development. The cross-country empirical analyses provide details as regards the "stuck-togetherness" of values and institutions. Besides establishing that both values and sticky formal institutions are strong determinants of long-run income, I find that the "stuck-togetherness" of values and institutions acts as a separate factor in development, and, in addition, amplifies the impact of values on development in the good-institution countries. Another result is that better formal institutions increase the marginal income-increasing effect of those individual values that are favorable to development. The results seem to be very robust.