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Status-Seeking Culture and Development of Capitalism

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

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Abstract

According to Werner Sombart's classic text Luxury and Capitalism, the status-seeking behavior of individuals may facilitate the development of capitalism and 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 explore how this cultural preference affects the transition of an economy from pre-industrial stagnation to modern economic growth. We find that the effects of status-seeking behaviors evolve across different stages of economic development. Specifically, a stronger preference for status seeking causes an earlier takeoff and increases economic growth in the short run but has an overall negative effect on the steady-state equilibrium growth rate. Finally, we calibrate the model to US data to perform a quantitative analysis and also use cross-country data to estimate the effects of status-seeking preference on economic growth.

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