Understanding Economic Development

**3**

**Chapter 1**

**Abstract**

coevolution

**1. Introduction**

Why Coevolution of Culture and

Institutions Matters for Economic

*Kyriaki I. Kafka, Pantelis C. Kostis and Panagiotis E. Petrakis*

Theoretical considerations that choose to make reference to the institutional and cultural considerations presuppose that these are in an optimal form. However, this is not the case in the real world. This chapter argues that the coevolution requirements of institutional and culture change are critical for economic outcomes. When institutions and culture coevolve in an optimal pattern, economic development and growth are facilitated. In contrast, when institutions and culture deviate from the optimal pace of coevolution, incompatible alterations of institutions and culture may end up causing an inability of the policy designers to implement the required changes in institutions and/or cultural behaviors. The result can be a series of failing attempts to implement a modernized progrowth framework of institutional settings and cultural behaviors. Using a dataset of 80 countries for the period 1981–2019, the analysis concludes that institutions and culture are complements—and not substitutes—in terms of their role in economic development, as when both sizes are strong it leads to higher levels of GDP per capita. When either or both of them are at

Development and Growth?

a weak level, economic development is much lower.

form. However, this is not the case in the real world.

**Keywords:** culture, institutions, economic development, economic growth,

Many studies and empirical works have come to conclusions about the important role of the institutional and/or cultural background in economic development and growth. Theoretical constructs that choose to refer to the institutional and cultural background presuppose that both of these backgrounds are in optimal

The requirements regarding the coevolution of the institutional and cultural background are crucial to the development process of an economy. When institutions and culture coevolve in an optimal pattern, economic growth is facilitated. In contrast, when institutions and culture deviate from the optimal pace of coevolution, incompatible alterations of institutions and culture may end up causing an inability of the policy designers to implement the required changes in institutions and/or cultural behaviors. The result can be a series of failed attempts to implement a modernized development framework for the institutional and cultural background of societies, leading to the perpetuation of stagnated growth prototypes.
