Status-seeking culture and development of capitalism

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-seekin...

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Bibliographic Details
Published in:Journal of economic behavior & organization 2020-12, Vol.180, p.275-290
Main Authors: Chu, Angus C., Fan, Haichao, Wang, Xilin
Format: Article
Language:English
Subjects:
Endogenous takeoff
Innovation
Status seeking
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Summary: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.
ISSN:0167-2681
1879-1751
DOI:10.1016/j.jebo.2020.10.010