Cultural assimilation, cultural diffusion and the origin of the wealth of nations

Abstacts from a very interesting essay by Quamrul Ashraf and Oded Galor(VoxEU):

"A thousand years ago, Asia was ahead. Why is Europe richer now? Asia was geographically less vulnerable to cultural diffusion and thus benefited from enhanced assimilation, lower cultural diversity and greater accumulation of society-specific human capital; this was an edge in the agricultural stage. Greater cultural rigidity, however, diminished the ability to adapt to a new technological paradigm, delaying their industrialisation.
At the start of the 2nd millennium CE, civilisations of Asia were arguably well ahead of European societies in both wealth and knowledge. By the 12th century, China employed water-driven machinery to make textiles and coke-based smelting to produce iron, technologies that would not appear in Europe for more than five hundred years. Yet, during the process of the Industrial Revolution, the technological leaders of the pre-industrial era were leapfrogged by European economies that accelerated into the modern age of sustained economic growth.
What can explain the delayed emergence of sustained growth in China and other leading agricultural societies? Theories attempting to explain the origins of the remarkable transformation of the world income distribution have often focused on sociocultural factors, geographical conditions, or sociopolitical institutions, emphasising a hierarchy of attributes in terms of their conduciveness to innovation and their ability in fostering industrialisation.
The premise of the cultural hypotheses is that societal norms, customs, and ethics can be ranked in terms of their ability to nurture technological innovation and capitalist development. In contrast, geographical explanations attribute Europe’s earlier escape from the Malthusian trap to its favorable natural-resource base, abundant rainfall, temperate climate, lower disease-burden, and proximity to the New World. Finally, institutional perspectives provide a variety of explanations, ranging from geography to colonialism, for the arrival (or absence) of social arrangements protecting private property and promoting innovation.
Existing explanations, however, do not simultaneously account for technological gaps across civilisations in the Malthusian epoch and reversals in their economic performance, associated with the differential timing of their take offs into the industrial era.

In a recent CEPR discussion paper, we offer a theory that encompasses both regimes, arguing that the interplay between the forces of cultural assimilation and cultural diffusion, determined in part by geographic factors, played a significant role in giving rise to differential patterns of economic development across the globe, contributing to the Great Divergence and reversals in economic performance.
In contrast to the cultural and institutional hypotheses, which posit a hierarchy of cultural and institutional attributes in terms of their conduciveness to innovation and their ability in fostering industrialisation, our theory suggests that the desirable degree of the relative prevalence of cultural assimilation versus cultural diffusion varies according to the stage of development.
Enhanced cultural assimilation is optimal within a given stage of development, but is detrimental for the transition between technological regimes. Thus, while cultural traits themselves do not necessarily have a differential effect on the process of development, it is the variation in the relative strengths of the forces of cultural assimilation and cultural diffusion, determining the diversity of these traits, which is instrumental for comparative economic development.
Productivity is enhanced by diversity-driven accumulation of general human capital but reduced by inefficiencies in the intergenerational transmission of society-specific human capital that is associated with diminished assimilation. Thus, societies that were geographically less vulnerable to cultural diffusion benefited from enhanced assimilation, lower cultural diversity and greater accumulation of society-specific human capital, flourishing in the technological paradigm that characterised the agricultural stage of development. This greater cultural rigidity, however, diminished the ability of these societies to adapt to a new technological paradigm, delaying their industrialisation and take-off to a state of sustained economic growth.
Culture and the wealth of nations
Our thesis is based on three fundamental elements.

First, cultural assimilation (i.e., the homogenisation of cultural traits within a society), enhances the intergenerational transmission of society-specific human capital, an observation consistent with empirical evidence on the development-promoting effects of greater social cohesion. Cultural homogeneity augments total factory productivity in the use of presently available technologies.
Second, cultural diffusion (i.e., the spread of cultural traits from one society to another) generates flexibility that expands an economy’s production-possibility frontier and enhances its ability to adapt new technologies, a view consistent with evidence on the creativity-promoting effects of workforce diversity. Thus, unlike existing sociocultural hypotheses describing a hierarchy of cultural attributes conducive to innovation and industrialisation, our research highlights cultural heterogeneity, not particular norms, as playing a critical, and ambiguous, role. While productivity is fostered by diversity-driven accumulation of general human capital, it is diminished by inefficiencies in the intergenerational transmission of society-specific human capital, associated with greater heterogenietiy.
Third, the accumulation of general human capital pushes a society towards industrial rather than agricultural production, as there is a smaller degree of complementarity between the advancement of the knowledge frontier and the stock of agriculture-specific productivity. This growth of latent manufacturing productivity ultimately leads to the adoption of industry in later stages of development, paving the way for a take-off from the Malthusian epoch. Thus, advancements in knowledge and invention promote socioeconomic transition to a new technological regime that is potentially more advanced in terms of per capita income.
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