Thinking Data
Analyzing the correlation between differences in societal trends and economic success
Is there a relationship between Hofstede's dimensions and economic success, and if so what is it?
Introduction
People around the world have unique cultural and social values that continuously affect their actions and daily lives. People living in the same country often share many similarities in their cultural values. When these cultural values are taken in the aggregate for a country we can explore connections between these cultural values and the economy. Understanding this relationship will allow policymakers to make informed decisions about improving the economy through social change.
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Geert Hofstede is a Dutch Social Psychologist who is well known as a pioneer in his field. Hofstede is most famous for his work on creating a framework of six cultural dimensions to understand the differences in culture across countries. Hofstede calls them “six basic issues that society needs to come to terms with to organize itself.” The six categories are Individualism, Power Distance, Uncertainty Avoidance, Masculinity, Long-Term Orientation, and Indulgence.
Data collection
I used three datasets throughout this project. The first was Hofstede’s Values Survey Module 2013(VSM13) dataset which was made up of values of the six cultural dimensions for multiple countries. It had 111 rows and 8 columns. The rows were for each country while 6 of the columns were the cultural dimensions and the other two columns were the country’s name and 3-letter abbreviation. the OECD Gross Domestic Product dataset I used had 5151 rows and 8 columns. The dataset contained information on 62 countries between 1960 and 2021. I also used a country code dataset containing 249 rows and 11 columns. The rows were countries and the columns were different types of identification for each country.
Data Cleaning
The datasets I used were not perfect and each contained many NULL values. One other problem was the fact that Hofstede’s VSM13 dataset used a different type of country code than the OECD dataset. The OECD dataset labeled each country with its official 3 letter code, not its name. This required me to create a common identifier between both datasets. I used the dataset of country codes as an intermediary because that contained both the name of the country and its official country code. I replaced specific values of the VSM13 dataset country code section where they didn’t match up with the official code. I then used this intermediary to drop countries in the Hofstede dataset but not in the OECD GDP dataset.
Data Visualization
I then created a new function to graph each cultural dimension. The function takes one of the dimensions as a parameter and graphs a scatter plot of the GDP per capita for each country against their respective rating for that cultural dimension. One problem was that the Hofstede dataset doesn’t have data for certain dimensions for specific countries. I solved this problem by creating a local copy of the Hofstede dataset in the function with no null values for the specific dimension that was passed as a parameter to the function. I then plotted the data as a scatter plot using Plotly. To make it easier to visualize the relationship between the cultural dimension and the GDP per capita I created a line of best fit and plotted it over the graph. I utilized NumPy to get the exact correlation coefficient of the data between GDP per capita and the specific cultural dimension. This number allows us to see exactly how much the GDP per capita relates to a specific cultural dimension.
Results
Individuality
Individualism is the “extent to which people feel independent”(Hofstede) and how much they are expected to make decisions for themselves. In contrast, its opposite, collectivism, is the extent to which people feel that they are a member of a larger group. The graph above displays the relationship between GDP per capita and the individualism index of a country where each point on the graph above is a country with the x-value being its individuality index and the y-value being the GDP per capita. A substantial amount of points are clustered around the line of best fit. There is a moderate correlation of 0.42 between GDP per capita and the individuality index. This graph tells us that as individuality increases, economic success tends to follow. This result makes sense because individualistic culture “attaches social status rewards to personal achievements”(Yuriy Gorodnichenko & Gerard Roland, 2011). Individualistic societies’ encouragement of personal success will lead people to strive for excellence and a desire to stand out.
Power Distance
The Power Distance Index measures people’s accept the current hierarchy and status quo. It allows us to measure how much people accept or challenge the authority of their superiors. A country with a high power distance index is where there is a clearly defined hierarchy and people accept and expect inequality. Members of a society with a high power distance index will be more compliant with their rules and regulations. On the other hand, a country with a low power distance index fosters beliefs of equality instead of strictly following a hierarchy. The graph above shows us that power distance is inversely correlated to GDP per capita with a correlation of -0.47. A higher power distance index means a worse economy for a country. A low power distance index discourages conformity and will motivate people to innovate and try new things while a high power distance index would put pressure on people to follow the status quo and discourage attempts to try anything new. Innovation and the willingness to try new things are good for the economy. Also, countries with a low power distance index tend to be western democracies. These countries usually have a better economy than other types of countries.
Uncertainty Avoidance
The Power Distance Index measures people’s accept the current hierarchy and status quo. It allows us to measure how much people accept or challenge the authority of their superiors. A country with a high power distance index is where there is a clearly defined hierarchy and people accept and expect inequality. Members of a society with a high power distance index will be more compliant with their rules and regulations. On the other hand, a country with a low power distance index fosters beliefs of equality instead of strictly following a hierarchy. The graph above shows us that power distance is inversely correlated to GDP per capita with a correlation of -0.47. A higher power distance index means a worse economy for a country. A low power distance index discourages conformity and will motivate people to innovate and try new things while a high power distance index would put pressure on people to follow the status quo and discourage attempts to try anything new. Innovation and the willingness to try new things are good for the economy. Also, countries with a low power distance index tend to be western democracies. These countries usually have a better economy than other types of countries.
Masculinity
The Masculinity index measures to what extent “the use of force is endorsed socially.” In a country with a high masculinity index, gender roles are more explicit and expected to be followed. In such a country “men are supposed to be from Mars” while women are supposed to be from Venus. A country with a high Masculinity index will also be more competitive and prioritize winning. In a country with a low Masculinity index, the emotional difference between genders is smaller, winning is less important, and “there is sympathy for the underdog.” In short, countries with higher masculinity index values are more openly gendered. The graph above shows a non-correlation between GDP per capita and masculinity. The trendline is flat and has a completely negligible correlation of - 0.001. Masculinity does not affect the economy.
Long Term Orientation
The Long-Term Orientation Index measures a society’s opinion of "change". A larger value for this index means a country is more long-term oriented and accepting of the change. The people of such a country would believe that the world is always changing and that they must always prepare for the future. On the other hand, a country with a low value for this index is more short-term oriented and focused on how the world is at that current moment. In such a country, the people believe “that the past provides a moral compass, and adhering to it is morally good.” The graph above shows an upward trendline which means a positive slope. The points are also scattered quite far from the line which shows the weakness of this correlation at only 0.15.
Conclusion
This project analyzed how Hofstede's six cultural dimensions affected per capita GDP. The six dimensions are Individualism, Power Distance, Uncertainty Avoidance, Masculinity, Long-Term Orientation, and Indulgence. The graph showed that the individualism index and the Indulgence index had a moderate positive correlation. On the other hand, the Uncertainty Avoidance index and Power Distribution index had a moderate negative correlation. The Masculinity index and Long term orientation index had extremely weak correlations so can be mostly ignored. I attempted to create logical explanations for each of the indexes to explain the correlations. However, "Post Hoc, Ergo Propter Hoc" is a Latin quote that means "After this, therefore because of this." This quote is a fallacy that says correlation means causation. Each of those points' explanations is a hypothesis and the cultural value might have no effect on the GDP per capita.