Institutional Change and Cultural Change

Abstract

This paper discusses the inclusion of cultural factors in economic analysis on a theoretical as well as on an empirical level. Using the example of catch-up development, it is demonstrated how a cultural approach to economics can advance our understanding of economic phenomena. As culture, which we define as the interplay between formal rules and informal constraints, is learned by individuals during their socialization, the role of individuals is incorporated into the analysis. Consequently, the paper investigates how individuals make sense of economic and other phenomena using their specific mental models. Because this interpretation of institutions is dependent on the cultural background of the individual, a cultural approach to economics has to consider the specific environment. On an empirical level we argue that qualitative methods are able to capture the complex relationship between culture, institutions, and individuals in a certain context. Thus, qualitative methods can complement existing quantitative approaches. Furthermore, the figure of the cultural interpreter is introduced to broaden our understanding of the role of culture in development processes. The cultural interpreter implements and communicates institutional development reforms and enables the researcher to approach the role of culture during the process of institutional change on a theoretical level as well as in (qualitative) field studies. 1.