The Role of a Nation's Culture in the Country's Governance: Stochastic Frontier Analysis

TL;DR

This study investigates how a nation's cultural traits influence its governance structures, using Hofstede's dimensions and governance indicators across 94 countries from 1996 to 2019, revealing significant cultural impacts on institutional quality.

Contribution

It introduces a stochastic frontier analysis to measure how effectively countries translate cultural characteristics into governance institutions.

Findings

Power Distance negatively affects governance quality.

Long-Term Orientation positively influences governance.

Cultural traits significantly shape institutional development.

Abstract

What role does culture play in determining institutions in a country? This paper argues that the establishment of institutions is a process originating predominantly in a nation's culture and tries to discern the role of a cultural background in the governance of countries. We use the six Hofstede's Cultural Dimensions and the six Worldwide Governance Indicators to test the strength of the relationship on 94 countries between 1996 and 2019. We find that the strongest cultural characteristics are Power Distance with negative effect on governance and Long-Term Orientation with positive effect. We also determine how well countries transform their cultural characteristics into institutions using stochastic frontier analysis.