Cultural Entropy, Innovation, and Growth

Abstract

According to the culture-based development (CBD) paradigm, studies culture as the code of attitudes on how to value the world. CBD handles the local cultural complexity by meaningfully reducing this complexity to two components—cultural heritage (CH) and living culture (LC). CH encompasses the attitudes valuing the “I” local inherited identity, celebrating itself as an insider winner. LC encompasses the attitudes that celebrate the “we” adaptive valuation of the newly co-created local identity where all present locally, not only the natives, participate in what is valued as art and beauty, and meaning. CBD defines cultural entropy as a Shannon entropy index capturing the balance between LC and CH in a locality. In other words, cultural entropy is the measure of the ratio between the “I” and “we” component in local culture. The aim of the paper is to establish whether localities with a more even balance between CH and LC are more successful in innovation. Using two panel datasets for EU NUTS2 regions (2002–2017), I find that lower cultural entropy is associated with the local proto-institution culture establishing more extractive formal institutions (i.e., levying higher taxes) that stifle innovation and economic growth. Thus, cultural entropy is the tool to capture the cultural root of how social capital emerges in a way that can foster flourishing or the emergence of left-behind places that lead to radical voting and socioeconomic demise.

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