Cultural Diversity, Geographical Isolation, and the Origin of the Wealth of Nations
This research argues that variations in the interplay between cultural assimilation and cultural diffusion have played a significant role in giving rise to differential patterns of economic development across the globe. Societies that were geographically less vulnerable to cultural diffusion benefited from enhanced assimilation, lower cultural diversity, and more intense accumulation of society-specific human capital. Thus, they operated more efficiently with respect to their production-possibility frontiers and flourished in the technological paradigm that characterized the agricultural stage of development. The lack of cultural diffusion and its manifestation in cultural rigidity, however, diminished the ability of these societies to adapt to a new technological paradigm, which delayed their industrialization and, hence, their take-off to a state of sustained economic growth. The theory thus contributes to the understanding of the advent of divergence and overtaking in the process of development. Consistently with the theory, the empirical analysis establishes that (i) geographical isolation prevalent in pre-industrial times (i.e., prior to the advent of airborne transportation technology) has had a persistent negative impact on the extent of contemporary cultural diversity; (ii) pre-industrial geographical isolation had a positive impact on economic development in the agricultural stage but has had a negative impact on income per capita in the course of industrialization; and (iii) cultural diversity, as determined exogenously by pre-industrial geographical isolation, has had a positive impact on economic development in the process of industrialization.
We are grateful to Daron Acemoglu, Dror Brenner, Raquel Fernández, Peter Howitt, Boyan Jovanovic, Ross Levine, Elias Papaioannou, Yona Rubinstein, Andrei Shleifer, Enrico Spolaore, Joachim Voth, David Weil, seminar participants at Ben-Gurion, Brown, Copenhagen, Doshisha, Hebrew U, Hitotsubashi, IMF, Keio, Kyoto, Osaka, Tel Aviv, Tokyo, Tufts, the World Bank, as well as conference participants at the CEPR UGT Summer Workshop, the NBER Macroeconomics Across Time and Space group meeting, the KEA International Employment Forum, the NBER Culture and Institutions group meeting, and the NBER Political Economy group meeting for their helpful comments and suggestions. Yoni Bedine, Boris Gershman, and Dean Weesner provided superlative research assistance. Galor's research is supported by NSF grant SES-0921573. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.