Faculty of law blogs / UNIVERSITY OF OXFORD

Incompatible European Partners? Cultural Predispositions and Household Financial Behavior


Michael Haliassos
Thomas Jansson
Yigitcan Karabulut

The ongoing refugee crisis and the fiscal crisis are different in nature, but they pose some common questions in the economic sphere. Are there cultural differences in economic behavior? If so, can they be expected to diminish with exposure to common institutions produced by possibly distant cultures? For refugees and migrants, the issue is their assimilation to the economic behavior of the native population. For residents in the fiscally troubled southern countries of Europe, the issue is their adaptation to institutions originating largely in the northern European states. Our paper, ‘Incompatible European Partners? Cultural Predispositions and Household Financial Behavior’, forthcoming in Management Science (its working version is available here) studies within-country cultural differences and assimilation of migrants, and also draws implications for cross-country institutional harmonization.

We first form cultural groups of European countries following two independent approaches: one based on genetic distance and the other based on Hofstede’s cultural dimensions.[1] Contrary to common preconceptions, we do not find a unique ‘southern culture’ but rather a single northern culture, a set of values and beliefs that distinguishes northern European from other heterogeneous European cultures.

Rather than comparing household behavior across countries, which could differ both because of cultural and institutional differences, we focus on migrants in a single country. We utilize the precise and high-quality administrative nation-wide panel data of the Swedish Longitudinal Individual Database (LINDA) on natives and migrants from different European countries exposed to Swedish institutions. We examine whether asset and debt participation decisions of migrants differ across cultural groups, controlling for heterogeneity in characteristics; and whether they tend to converge with those of native Swedes with longer exposure to a common set of institutions.

We document differences in asset and debt participation between migrants of different cultures over the length of our sample, from 1999 to 2007, using northern Europeans (other than native Swedes) as the base group for comparison. As we are comparing migrants to migrants to uncover cultural differences in this first part, we avoid the potential problem of observing migrant behavior that differs from that of natives for reasons related to their migrant status per se rather than to their culture. Our econometric approach, based on estimating the combined effect of all coefficient differences across cultural groups, provides a broader and more flexible view of the different links between household characteristics and financial behavior than existing literature using migrant samples.

Having established the presence of differences in behavior controlling for household characteristics, we trace and compare across cultural groups the evolution of these differences and the speed of assimilation to the behavior of native Swedes. Assimilation is examined as a function of the length of time spent in Sweden, controlling for a number of household characteristics. We find a general tendency of differences in financial behavior across cultural groups to become smaller as the length of stay in Sweden is extended, but also observe some variation in the pattern and the extent of assimilation across cultural groups.

We then study within-cultural-group heterogeneity in the degree of assimilation to native Swedish financial behavior. We divide migrants in each cultural group into two subgroups based on their length of stay in Sweden: those with a length of stay above the median for their group, and those below. We find that those with a longer exposure to Swedish institutions tend to exhibit links between household characteristics and financial behavior closer to those of native Swedes. We also find that migrants who moved to Sweden after turning 18 exhibit greater differences from native Swedes, controlling for household characteristics, compared to those who moved before reaching adulthood (typically following their parents). This suggests that exposure to home-country institutions during an individual’s working life delays assimilation to host country behavior, although the precise role of this factor relative to that of a shorter stay in Sweden cannot be separately identified.

Our findings on assimilation in financial behavior complement and extend the literature on effects of institutions on culture. Although we find convergence in financial behavior with exposure to common institutions, we do not find that differences disappear completely. This extends recent studies that focus on regional variation in culture and show that national institutions do not eliminate it. By examining robustness of our findings to excluding migrants who married native Swedes, we also find that assimilation does not require exposure to informal aspects of culture.

All in all, our findings are highly consistent with the view that assimilation of financial behavior to accepted institutions originating in other, possibly distant, cultures does take time but is likely to occur. This is relevant both for the migrant crisis and for the fiscal crisis.

Michael Haliassos is a Professor and the Chair of Macroeconomics and Finance at  Goethe University Frankfurt, Thomas Jansson is an Economist at Sveriges Riksbank and Yigitcan Karabulut is an Assistant Professor of Finance at Rotterdam School of Management of Erasmus University.


[1] Geert Hofstede, Culture’s Consequences: International Differences in Work-Related Values, (Beverly Hills, CA: Sage Publications, 1980).


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