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Cultural, Political, and Economic Antecedents of Country Risk in Sixty-Two Countries

Journal 34: Cass-Capco Institute Paper Series on Risk

Moshe Banai

This study presents and empirically tests a model of the relationships between cultural, political, and economic measures and business practices in sixty-two countries. GLOBE study’s nine dimensions of culture’s scores are regressed along scores on democracy, religiousness, GDP, corruption, and country risk. The results indicate that in-group collectivism and humane orientation are good predictors of democracy, religion, and corruption; performance orientation and uncertainty avoidance are good predictors of societal institutions; and corruption and societal institutions are good predictors of country risk. Implications for scholars and practitioners are offered.

Forty years ago numerous researchers had suggested that it would be worthwhile to correlate socio-cultural, political, and economic variables with various dimensions of business practices across nations [Ajifer-uke and Boddewyn (1970a); Farmer and Richman (1965); Haire et al. (1966); Harbison and Myers (1959)]. Culture [Hofstede (1980), House et al. (2004), Dyck and Zingales (2004)] and political institutions [Child (1981); Geertz (1973); Glaser and Strauss (1967) have been claimed to influence nations’ economic performance. Yet, a model that would be able to establish relationships between culture, political institutions, economic performance, and management in organizations could not be fully and empirically tested at that time because of lack of data. Efforts were made to correlate a few variables at a time, however, there was no concentrated effort to offer and test a comprehensive theory that would be able to explain and predict the impact of cultural, political, and economic extraneous variables on business practices cross-culturally.

In 2004, the GLOBE research group [House et al. (2004)] came up with nine dimensions of culture measured across sixty-two countries, an achievement that has made the research about the relationships between culture and management statistically possible. This study adopts the GLOBE measures and offers and tests a model of the relationships between cultural, political, and economic measures, and business practices of corruption and risk in sixty-two countries. Corruption and risk are measured at the national level rather than at an organizational level. They are used here as proxies for risk taking involved in the day to day operations of organizations. Hence, in this study the GLOBE study’s nine dimensions of culture’s scores are regressed along scores for democracy, religiousness, GDP, corruption, and country risk. These variables are discussed in the next section, first culture as the independent variable, and then democracy, religiousness, GDP, as well as corruption and country risk as dependent variables.

Several of the relationships analyzed here have been described, explained, and tested in the past. However, no one study has gone so far as to empirically measure culture, political institutions, and economic indicators in one model, certainly not in a sample consisting of sixty-two countries. This is the uniqueness and the contribution of this study. The sample size and richness of the variables have the potential to establish a theory of the relationships between societies’ cultural values and their institutional and economic performance. When the market is global the ability to predict a nation’s performance by measuring its peoples’ social values could prove to be a powerful tool for scientists, practitioners, and politicians. Moreover, efforts to change some of these values may be used by educators to improve a nation’s performance.

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