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Status-Seeking Culture and Development of Capitalism

Chu, Angus C. and Wang, Xilin (2020): Status-Seeking Culture and Development of Capitalism.

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According to Werner Sombart's classic text Luxury and Capitalism, the status-seeking behavior of individuals may facilitate the development of capitalism and give rise to an early industrialization. In this study, we develop a growth-theoretic framework to formalize this hypothesis by introducing a status-seeking preference into the Schumpeterian growth model of endogenous takeoff. Then, we use the model to explore how this cultural preference affects the transition of an economy from pre-industrial stagnation to modern economic growth. We find that a stronger preference for status seeking causes an earlier takeoff and a positive effect on economic growth in the short run but an overall ambiguous effect on growth in the long run. We also calibrate the model to data to perform a quantitative analysis and find that a stronger status-seeking preference reduces the steady-state equilibrium growth rate under reasonable parameter values. Therefore, the effects of status-seeking behaviors evolve across different stages of economic development.

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