Globalization, Cultural Dynamics and Policy

Globalization & Culture ?

• Standard View: Efficiency gains in production and consumption; Trade openness is good!

• Anti-Glob : Erosion of local cultures by standardized tradable goods « McDonalization » of society

• Immaterial Globalization: Trade affects culture \cultural identity

• Homogenization \diversity

• Expansion Poll (1999): 60% of French people :Globalization as the greatest threat to the French Way of Life.

• “Excessive US Influence on French Culture” (SOFRES 2000)65 % on Television , 57% on Cinema, 37% Music, 34% on FoodAmong young French (15-24): 74%

- Erosion of culture 2: Mc Do = Threat against French Culture!

Jose Bove (French Anti-Globalizer) got huge popularity amongfrench population after having destroyed a Mc Donald restaurant in Millau (in Larzac where all French Contestatairesimmigrated after May 68).

He was convicted but released before being legally penalized

- Erosion of culture 1: (Far Eastern Economic Review, 2003):« China is not a nation of cheese lovers. At least one company wants to change that…»« China’s cheese market is still tiny […] but sales have jumpedmore than 130% »

• In India: protest focused on vegetarianism and non use of beef.

- In Israel:

protest against non Kocher food & decrease in collective solidarity.

(Jerusalem Post, 2002).

• « Sushi comes home with cream cheese and chili ! »

(H. French, NY-times, April 2002):

Culinary cross-fertilization in Japan.

• Erosion of culture 3: « Cellphone and Kabary » in Madagascar(Christian Science Monitor 2002)

• Erosion of culture 4: « Beauty Contest and Slimness » in Nigeria (New York Times 2002)

Cost of talk on cell phone: people have to go the point quickly

2000 : Miss Nigeria \ slim and skinny wins the 2001 Miss World Contest !!

Change young Nigerians’ perception of beauty

Nigerian ideal of female beauty : « Coca-Cola-bottle » voluptuousness, big ,ample backsides and bosoms

Kabary : traditional malagasy way to communicate :oratory , metaphors, the point is to avoid the point :No straight talk !! Circular movement, word play,

Local cultural identity and Resistance to trade openness- Mayda and Rodrik 2002 : individuals who claim to have high attachment

to their neighbourhood and community tend to favour trade restrictions;

Literature on « Globalization and Culture »:

• Resilience and Clash between cultures (Huntington (1996))

• Mixing and Hybridization (Nederveen Pieterse 2004, Cowen 2002)- Creolization, Metissage, Creative destruction and innovations

• Convergence and Mc Donalization\Coca-colonization (Ritzer 2002):- Hamburger: « efficiency, calculability, predictability, control »:

perfect standardized & tradable goods.- « Slow food » Movement (Italy \ Hong Kong)

Policy issues : The logic of “cultural exception”:

- In 1950, the Florence agreement on the free circulation of cultural materials to limit trade of goods that may prejudice the development of national cultural products.

More recently, US has become a champion of free trade against new proponents of the “cultural exception” such as European countries.

- Failure of Multilateral Agreement on Investment (OECD 1998) Cultural sector (Jack Lang), intellectuals, farmers: defending french culture

- Protection in entertainment sector: Television Without Frontiers (1989) 60% of transmissions must be European \ 50% (french language)

• Cultural Identity? Set of Symbolic systems (Geertz 1973) : - perception \ cognition \ understanding \ identification.

- Integrated into economic activities \ community aspect

• Usual Effect: Cultural identity economic equilibriumDemand effect: size of cultural community impacts prices. Distortion caused by the identity externality.

• Positive externality conferred by consumption\interaction particular good within the community. Akerlof & Kranton (2000)

Identity Formation and International TradeOlivier, Thoenig and Verdier (2008)

• Less usual effect: Economic equilibrium Endogenous Cultural identity

2. Transmission\diffusion of preferences: Social Evolutionary Process

- Bisin & Verdier (2000); Incentives to transmit own preferences depend on subjective costsof imaginating people with different preferences

Relative price effect (promotes diversity) vs Cultural identity effect (promotes homogeneity)

• Endogenous preferences: Demand side determined by supply side Materialistic view of preferences!

• Endogenous « Home Bias »: price premium local vs imported goods depends on cultural composition

• Small open economy case: Trade openness (through prices) erodes long run cultural local identitywhen domestic imports are « economic » substitute to « local cultural » goods.

Source of comparative adv: Techno & Factor Endw! Directly and Indirectly.

• Virtual Integration

• Evolution of preferences, cultural diversity & trade ? Bala andVan Long (2004).

-Endogenous cultural diversity: no micro-foundations. View of cultural diversity is different: Heterogenous preferences; no externality.

• Janeba (2003): cultural identity as a consumption externality. - Main difference: cultural externality is taken as given while it is

endogenous in our work: dynamics of cultural diversity.

-cultural goods industry: IRS imperfect competition; optimal tradeprotection? -Here: perfect competition & collective dimension of culture.

• Cultural goods & trade: Van Ypersele & François (2002); Ramezzana (2003)

Literature on trade and cultural diversity

Sketch of a Model• Continuous time; Non overlapping generation model without demographics; population is fixed and normalized to 1.

• At each date t:a fraction 1-qt of standard "homo economicus“ agents.a fraction qt of " homo culturalis“ agents.

• 3 goods. -Good z: non cultural, numeraire good-Good x is a "cultural" good with positive consumption externality. -Good y is a "non cultural" good which is a close substitutefrom a purely economic point of view to the cultural good x.

• With no cultural externality: individual utility is Cobb-Douglass

U z1−.c

z : consumption of numéraire good, c: consumption of « cultural » good X

\ perfect substitute economic good Y

• Cultural externality: random matching \ social exchange

- 2 « culturalis » agents meet and have consumed cultural good, utility: multiplied by coefficient I > 1

- Otherwise, utility left unchanged by match.

• Utility of « homo culturalis » who consumes good X:

Denote: Iq ≡ 1 qI − 11/

UC x, z z1−. Iqx

• Utility of « homo culturalis » who consumes good Y and « homo economicus »

UC y, z UE y, z z1−.yUE x, z z1−.x

• Expected utility of « homo culturalis » consuming cultural good X

UC x, z 1 − q. z1−.x q. I. z1−.x

• Consumer’s pb: 1) choose whether to be X-consumer or Y-consumer, 2) choose consumption levels of good Z \ X or Y

px and py relative prices of good x and good y in terms of good z

• Individual of type E prefers good X if and only if:• Individual of type C prefers good X if and only if: px Iqtpy

px py

• Good Z in fixed quantity

The supply side

• Goods X and Y : prices px and py

L: common resource used between X and YK : specific resource for X (« local cultural » capital)

Perfect competition

Autarkic Equilibrium

• At time t: cultural composition of population given by qt

Demand = supply "cultural premium » : px / py > 1

Increasing function of qt (fraction of homo culturalis)Depends on endowments K and L as well!

Cultural dynamics: the time evolution of qt

Process of intergenerational transmission of preferences(or : imitation and horizontal transmission; faster dynamics!):Bisin and Verdier (QJE 2000, JET 2001, JPE 2004 with Topa) andFrançois (2000).

Population of culturalis

Paternalistic view :- subjective costs to imagine children with different preferences! - the larger the subjective costs, the larger the effort of transmission!

Cultural dynamics:

q t qt1 − qtΔV Cqt − ΔV Eqt

Replicator: socialization or social learning

Relative effort of transmission C vs E

Subjective cost for C agents Subjective cost for E agents

qtdt qt1 − dt dtqtPCCt dt1 − qtPEC

t

.qt qt1 − qtC − E

Non OLG; C and E agents-between t, t+dt, a fraction λdt die and give birth to a child.-Transmission of preferences through social learning:

- Vertical (within family) : proba τC or τE with a convex cost C(τi,1−qit)- Oblique : random matching with another agent E or C

+ -

Transmission of preferences: some micro-foundations

Vertical and oblique cultural transmission

τc and τE are chosen optimally by C and E agents. depend on subjective costs of imaginating children different from themand a convex cost of transmission C(τ,q) = Ψ(τ)(1−q)

uiqt PiiVii PijVij − Ci,qtiMax

C ′−1VCC − VCE ′−1ΔVC

E ′−1VEE − VEC ′−1ΔVE

.qt qt1 − qt′−1ΔVC − ′−1ΔVE

Horizontal cultural transmission: Stationary population \ random matching (λdt) \ communication game

-2 individuals of same type match, nothing happens-2 individuals of different types i and j match, type i may shift to preference structure of type j with proba Pij

i• Agent i tries to convince agent j to switch his type (through filter of his preferences) \ communication noise degree of conviction of i's speech is a positive function of

ΔVi Uii − Uij i+( )

Agent whose conviction strength is weakest, looses game and changes his type with proba:

ΔVi i ≶ ΔVj j

Pij FΔVi − ΔVjF(.): CF of stochastic variable: eji j − i ; F(0)=1-F(0)=1/2

.qt qt1 − qt2FΔVC − ΔVE − 1

Subjective costs: ∆VE (px/py , qt) and ∆VC (px/py , qt)+ 0 - +

• Steady state given by: ∆VE/ ∆VC = 1

Cultural dynamics : ∆VE (px/py , qt) / ∆VC (px/py , qt) larger or less 1

- « cultural identity » effect:q increases, ∆VC goes up. ∆VE/ ∆VC

- « relative price » effect:q increases, cultural premium px / py goes up∆VE goes up and ∆VC goes down ∆VE/ ∆VC

- « relative price » effect: stronger than « cultural identity » effect

qq q

1

qSS,a 1

ΔVE/ΔVC

« homo culturalis »: increasing in local cultural capital Kincreasing in identity parameter I

decreasing in L

Intuition: increase in L (at given prices): increase output of « L-intensive » good

Y goes up and X goes downcultural premium Px /Py goes upfraction of « culturalis » goes downmore demand on Y

py/pz

Endogenous « home bias » : Domestic preferences increasingly biased towards good produced in relative abundance

1

q

∆VE/ ∆VC

A B C

Non monotonicity and Multiple equilibria

Small open economy case: Cultural Erosion

Less culturalis q

Small open economy facing :Good Y is cheaper outside Imports of good Y; exports of good Z

pfy < pa

y

(pay < pa

x , qa)

X: cultural good, non tradable (local specific factor K)Y & Z are tradable goodsEconomy has reached its long run autarkic equilibrium:

Cultural premium px / py « higher »: subjective cost of homo economicus ∆VE

subjective cost of homo culturalis ∆VC

1

q

∆VE/ ∆VC

Catastrophic Erosion with multiple equilibria

A B C

Virtual Integration

• Globalization increases virtual encounters & contacts! Not tradein commodities.

• Cultural transmission takes place within the country:(agents from different countries cannot influence each other)

dilution of consumption externality in both countries

Ivirq 1 qLLL∗ I − 11/

qvirt. qaut.

No trade: autarkic equilibrium

To summarize

1/ Non tradable + positive local externality : cultural good2/ cultural identity is endogenous: transmission of preferences

• R1: Tradable imported goods erode local culture

• R2: Trade in goods may amplify initial cultural differences.

• R3: Trade erodes local culture for country with comparative disadvantage in global cultural goods

• R4: Virtual integration erodes local \favors global

• Competition between cultures

Extensions

• More than 1 country: pattern of trade cultural/non cultural goods

• Migration, tourism and FDI: other drivers of cultural change • Virtual integration/ Media

• Empirical aspects: - Dynamics/variety of surnames and media- Economic Assimilation of migrants and cultural values

- Pattern of trade and ethnic composition

• Policy : trade versus cultural

• Political economy aspects

• Local versus Global / Mixing « creolization » Hybridation of cultures• supply side: cultural capital/artists/ inventors

• Is the village global ? Is globalization a factor of cultural homogenization between countries? Product-based cultural change

• Theory:- Krugman Model of Trade in differentiated products (79) + cultural dynamics. - Product convey values and symbols: differentiated goods!- Trade openness reduces bilateral cultural distance: stronger for differentiated goods.- Multiple equilibria and lock-in.

Evolution of Cultural distances and TradeMaystre , Olivier, Thoenig and Verdier (2008)

• Empirical Test:- time-varying index of cultural distance

for large panel of countries (rich and poor) over 20 years (long enough to observe cultural changes…) individual survey data (WVS).

• Evidence of cultural homogenization• Causal impact from trade in goods to cultural homogenization.

The effect is sizeable (36% SD).

• Evidence of cultural lock-in and path-dependency

• Results are robust to various specifications: panel with many FE; IV estimations;

• Insights from Anthropology and Marketing (consumer research): Values are embedded in differentiated goods

• Agents of a given culture have preferences which are biased toward the set of goods that conveys the values of their culture.

• Upon entry, firms do marketing and instill into products cultural elements consistent with one particular set of values.

• Two cultural traits [preferences]: local (q) and global (1-q)

• Varieties convey the cultural traits: # varieties Nx, NY – love for variety

• Cultural transmission: Cost/Benefits [Bisin-Verdier, Francois, Tabellini, …]

- Endogenous transmission (family) : optimal probability effort τX, τY[direct transmission + endogenous choice of peer network]

- Exogenous contamination (exposure to the external cultural & social environment): When failure of endogenous transmission, informationalspillover depends on the matching probabilities (q,1-q)

• Cultural replicator: differential pressures of socialization

• Instantaneous Economic Equili.: Free-entry and Market size (Krugman 79)

PM

PM

CS

10

Phase Diagram : high σNXtNYt

qt

qt 0

CS1/2

Trade Openness:

• Trade openness between 2 identical countries

• In each country there is one country-specific local cultural trait and the cultural global trait (common to both countries)

• We study the evolution of bilateral cultural distance : probability that two randomlypicked individuals in two different countries do not share the same cultural trait.

• After trade openness, the relative market size of the local cultural goods shrinks in both countries. The relative number of local varieties decreases [IRS and Home market effect]. Incentives for transmitting local culture decrease

PM

PM

CS

10

Trade Openness … decreases bilateral cultural distance !NXtNYt

qt1/2

PM’

PM’

PM

PM

CS

10

NXtNYt

qt

qt 0

CS1/2

Multiple Equilibria: low σ

q0 q1

PM

PM

CS

10

NXtNYt

qtCS

1/2

Trade openness: low σ

q0 q1

PM’

- Small perturbation … big cultural change !- Path-dependency and lock-in

World Values Survey• Comprehensive measurement of all major areas of human concern, from religion

to politics to economic and social life (Inglehart). 267'870 individual observations from 82 countries spread over 4 waves 1981-84 (21), 1989-93 (43), 1994-99 (54) & 2000-04 (70). Sample size: between 1000 and 1400 individuals by country/wave

• In line with our microfounded models of cultural transmission: we retrieve from the WVS all the questions related to intergenerational transmissions of values from parents to children.

- Set of 12 questions

- Limiting measurement errors in the time-series dimension: subsample of countries and waves for which the full set of 12 questions is available

. - 79 different countries with various level of development and geographical locations

. - On average each country is present in 2.2 different waves

Index measuring average probability that two randomly picked individuals, between two countries or within one country, do not share the same opinion, belief, value on a given dimension. [Herfindhalindex]

Advantages of this measure :

(1) Intuitive and corresponds to what we analyze in the model(2) Herfindhal indices are commonly used in the literature on ethnic

and religious fragmentation(3) Decomposable index (internal /bilateral cultural distance).

Issues to consider:

(1) Index may be multidimensional (# of selected questions)(2) Questions might be correlated!

Definition of cultural distance

Construction of the measure

Inter-individual cultural distances : Mahalanobis distance; standard measure of dissimilarity between random (andcorrelated) vectors

• “Ordinal” differences

•Fractionalization Index is a subcase

Construction of the measure (con’d)So we end up with a symmetric matrix of inter-individual distances at each period (computer intensive !)

'

''

average of at the country, level

1( 1)

cc ii

iii c i cc c

d dc

dN N ∈ ∈

≡

≡− ∑∑

• Internal cultural distance

1 1 1 1 1 1

1 11 1 1 1

1 1

11

1

1 , 1 ,1 1 , 1 ,1 1 ,

, ,,1 ,1 ,1

1 ,1 1 , 1 , 1 ,1 1 ,

, ,,1 ,1 ,1

1 ,1 1

0

0

0

0

c c C C

cc CC

c c c c c cC C

c cc c c c CC

C C

N N N

N N N NN N N

N N N

N N N NN N N

D

d d d d d

d d d d d

d d d d d

d d d d d

d d

≡

L L L L L

M O M L M O M L M O M

L L L L L

M M M O M M M O M M M

L L L L L

M O M L M O M L M O M

L L L L L

M M M O M M M O M M M

L1

11

, 1 ,1 1 , 1 ,

, ,,1 ,1 ,1

0

0

c cC C C C

ccC CC C C C

N N N

N N N NN N N

d d d

d d d d d

⎡ ⎤⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎢ ⎥⎣ ⎦

L L L L

M O M L M O M L M O M

L L L L L

Country 1 Country c Country C Country 1

Country C

Country c• Bilateral cultural distance

' '

'''

average of at thecountry-pairs ( , ') level

1

cc ii

iii c i cc c

d dc c

dN N ∈ ∈

≡

≡ ∑∑

Comparison with existing time-invariant proxies of cultural distance

• Bilateral cultural distance: 0.6 percentage point decrease (from 30.1% to 29.5%)

• « Speed of change »: SDtime-series/SDcross = 0.31

ALBARG

AUTBGD

BEL

BIH

BGRBLR

CANCHL

CHN

CZE

DNK

EST

FIN

FRA

DEU

GRCHUN

ISL

IND

IDN

IRNIRL

ITA

JPN

JORKOR

KGZLVALTU

LUX

MLT

MEX

MDA MARNLD

NGA

PAK

PER

PHL

POL

PRT

ROM

RUS

SAU

SGP

SVK VNMSVN

ZAF

ZWE

ESPTUR

UGA

UKR

MKD

EGY

TZA

USA

VENYUG

.3.3

5.4

.45

.5cu

ltura

l dis

tanc

e

2 4 6 8 10ln of weighted distance (pop-wt, km)

cultural distances (bilateral)cultural distances (internal)

Fitted values

Cultural Border Effects

Data

• Aggregate bilateral trade: IMF DOTS database

• income data: World Bank WDI database

• bilateral trade facilitating factors: CEPII database

• regional trade agreements: Baier & Bergstrand (2004)

• ethnic, linguistic, religious fractionalization: Alesina et al. (2003)

• ethnic fractionalization, cultural fractionalization: Fearon (2003)

• Bilateral Immigration Data: UN DESA

Average the yearly Trade data on 5 year window.

• Merge with WVS (4 waves)

Instruments for trade (with culture on the LHS)

• Bilateral Remoteness controlling for country-pairs FE (positive effect on bilateral trade)

• Alleviates endogeneity issues [reverse causality and omitted variable]

• Trade in differentiated goods is more sensitive to remoteness than trade in homogenous goods [statistical fact].

• We expect to observe an increase in the coefficient of trade openness in the 2SLS.

Quantification

A one SD in … explains … of the SD in cultural distance

– bilateral openness (2SLS) 36.2 %– Internet Access 27.7 %– FDI 16.0 %– GDP differential 5.5%

Conclusion / policy implications• … Trade in goods is an important vector of cultural

homogenization.• Stronger for differentiated goods• Evidence of Path-dependency• Rapid change

• What is the new culture? Postmodernism vs hybrid culture

• Cultural diversity and public governance:Trade integration is good?

• Policy Trade-off: Protectionism and Social costs of Trade Homogeneity and Public good provision

Globalization, cultural diversity and public governance

• Immigration and Information diffusion:Diversity/ Sustainability of Welfare systems

/ Economic Gains