The Role of a Nation's Culture in the Country's Governance: Stochastic Frontier Analysis

Abstract: What role does culture play in determining institutions in a country? This paper argues that the establishment of institutions is a process originating predominantly in a nation's culture and tries to discern the role of a cultural background in the governance of countries. We use the six Hofstede's Cultural Dimensions and the six Worldwide Governance Indicators to test the strength of the relationship on 94 countries between 1996 and 2019. We find that the strongest cultural characteristics are Power Distance with negative effect on governance and Long-Term Orientation with positive effect. We also determine how well countries transform their cultural characteristics into institutions using stochastic frontier analysis.