Do societal values influence financial development? New evidence on the effects of post materialism and institutions on stock markets

Post Materialism and Comparative Economic Development: Do Institutions Act as Transmission Channel?

“…This approach is in line with the theoretical considerations underlying the hierarchy of social analysis by Williamson (2000) and the empirical evidence that social values influence institutions (Alesina and Giuliano 2015). In particular, we use the degree of post materialism as instrument for institutions (see Jordaan et al 2016). Citizens with post materialistic values are socially active and are likely to put pressure on governments to change and improve institutional settings, in order to advance their values and priorities.…”

“…Although intuitively appealing, only a few studies have examined this role of institutions as transmission channel (e.g. Bjørnskov 2012; Jordaan et al 2016). We believe that it is likely that such indirect economic effects materialise from post materialism via institutions.…”

“…In contrast, there is also evidence that suggests that elements of post materialism may generate positive economic effects. Jordaan et al (2016) argue that post materialistic citizens are more likely to operate on stock markets, as they value economic autonomy and want to make independent financial investments. This is corroborated by their findings that identify a robust positive effect of post materialism on the size of stock markets.…”

“…Over the last decades, a wealth of evidence has become available indicating that institutions provide an important explanation for international income differences and long run growth Lloyd and Lee 2016). However, most research on the economic effects of institutions or social values examines the effects of these phenomena in isolation (Jordaan et al 2016). Findings from the small number of studies that do examine economic effects of social values and institutions jointly show that this may impact upon the estimated effect of social values.…”

“…Only a limited number of studies have attempted to identify this transmission effect of institutions (Bjørnskov 2012). Jordaan et al (2016) use 3SLS estimation techniques in their study on the effect of social values on financial development and find that a substantial part of the effect runs via various democratic and legal institutions. Boulila et al (2008) estimate a simultaneous equation model on drivers of economic growth and find that social capital fosters growth via its positive effect on institutional quality.…”