Evaluating: Culture and its role in shaping economic performance

Research paper results show increase in reported trust decreases probability of labour force participation

NORTHAMPTON: Culture defined as a collection of shared beliefs and norms is widely believed to be an important factor towards explaining economic performance of countries.

Culture continues to shape individual incentives that lead people to develop institutions affecting the development paths of nations.

Nobel laureate Dr Douglas North in his seminal work on institutions has also discussed the role of informal constraints in shaping formal constraints in society. He argues that informal norms are formed after long interactions with society, language, polity and economic conditions and are less prone to frequent changes from exogenous shocks. Other economists have also concluded that cultural values that are path dependent (following through since time) are a crucial explanatory factor towards variations in regional economic performance across Europe.

In an interesting new paper, ‘La Familia- How Trust Towards Family Decreases Female Labour Force Participation’, authors Dr Adnan Haider and Asim Jahangir have investigated whether comprehensive trust towards family members leads to a decrease in female labour force participation in 34 Sub Saharan African countries. Rather than using a blanket definition of culture the authors have used the level of trust towards immediate family as a cultural trait and empirically analysed the causal relationship between trust and labour force participation. Strong family bonds – an indicator of the country’s value system – indicate that members trust each other for care and support, especially in the time of need.

The authors estimate the level of trust from data from the AfroBarometer survey and used the same source to construct a measure of labour force participation. Their results show that an increase in reported trust decreases the probability of labour force participation significantly. The empirical investigations reveals that as trust in family members increases, female labour force participation rates decrease by a minimum of 7% and maximum of 13%. Their results were shown to be robust controlling for other factors such as household size, marital status, religious affiliation of respondents and regional specifications.

The Pakistani perspective

Would the results of the paper have been any different had it been replicated on Pakistan? Pakistan also has a strong family system where members trust each other for care and support. According to Dr Adnan Haider, the patriarchal culture in the country coupled with a religious makeup would lead to similar results. These cultural barriers, which create enormous difficulties for women to work and pursue their careers, are witnessed in poor labour force participation rates.

According to the most recent Pakistan Labour Force Survey of 2014-15, labour force participation rate stands at an overall 32%. Dissecting this into gender categories reveals that 48% of men and 16% of women are part of the country’s labour force. The survey also reveals that almost 29% of women aged 10 and above are part of the country’s labour force in rural areas relative to 10% in urban areas. This is due to the involvement of women as skilled agricultural, forestry and fishery workers. It is disheartening to note that due to lack of education in the country and poor support systems for women to continue their careers an abysmal 0.06% of women are in the managerial position in the country.

Policymakers must take into mind cultural values and indigenous institutional structures to design equitable and efficient policies that maximise gains for the society. Imagine the economic and welfare benefits that the country can possibly achieve if it becomes more inclusive towards women working?

The writer is an economist and ex-central banker

Published in The Express Tribune, December 26^th, 2016.

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