Cultural norms matter for macroeconomic development

Interest in the role of cultural norms, institutions, and development has resurfaced in recent years especially post the 2024 Nobel Prize in Economics. This column revisits Bhutan, which has pursued ‘gross national happiness’ rather than GDP since the 1970s. Four decades of data show that rapid income growth remains only weakly associated with measured happiness, even as multidimensional wellbeing has continued to rise alongside growth. The broader lesson is that a wellbeing measure becomes effective only if it is embedded in local cultural norms and given institutional teeth, showcasing the importance of cultural norms to economic development.

The premise of why nations prosper or fail is back in vogue in the discourse around international economics. The 2024 Nobel Prize in Economics recognised work arguing that institutions are the deep determinant of long-run prosperity (Acemoglu et al. 2001). While this has been a more recent perspective, there has been a stream of literature on this subject in the past. Running alongside that institutional story is a quieter but perhaps more comprehensive one about culture – the beliefs, norms, and values a society carries – and its key role in shaping how a nation develops (Ang 2016, Guiso et al. 2006, Alesina and Giuliano 2015, Nunn 2009). 

A parallel debate concerns what we should even be trying to maximise. Ever since Easterlin (1974) observed that rising national income did not seem to raise average happiness, and since the Stiglitz–Sen–Fitoussi commission urged governments to look past GDP (Stiglitz et al. 2009), a ‘wellbeing economy’ movement has spread, from New Zealand’s wellbeing budget to happiness ministries and OECD dashboards. Easterlin’s death in December 2024 prompted a wave of reflection on how far that agenda has come (Oswald 2025). 

Two open questions sit at the intersection of these debates. Is a country’s cultural endowment a brake on development or an asset for it? And can a wellbeing measure actually change what governments do, rather than serve as an ornament?

In recent research, Paul Cashin and I take this forward (Balasubramanian and Cashin 2026). For several decades, Bhutan’s economic and growth paradigm has been structured around a wellbeing measure called gross national happiness (GNH) rather than gross domestic product (GDP). GNH was seen as an index based on the cultural ethos of Bhutan and serves as an important reflection of its values by the country’s monarchy and government. It is built on four pillars (equitable socioeconomic development, cultural preservation, environmental conservation, and good governance), cutting across nine domains and dozens of weighted indicators, and estimated from nationwide surveys fielded in 2010, 2015, and 2022 (Ura et al. 2012). 

Importantly, this index has the backing of institutions and successive democratically elected governments and feeds into key decisions for projects and policies alike. Four decades of macroeconomic data alongside three survey waves give us something close to a long-run policy experiment.

What four decades of data show

First, the Easterlin paradox seems to persist in our latest iteration based on the data. Bhutan’s income has grown rapidly over four decades, but that growth remains only weakly associated with improvements in measured happiness. This is consistent with the Easterlin paradox even after the COVID-19 macro shock. The debate over the paradox remains an engaging one, but Bhutan’s own trajectory seems to follow its pre covid 19 trend, as an earlier analysis first suggested (Balasubramanian 2019, building on Di Tella and MacCulloch 2008).

Second, the trajectories of wellbeing and macroeconomic growth have been broadly seen to be moving in the same direction rather than opposing directions. As growth prospered, dimensions of the GNH index continue to also progress in the right direction. This largely counters the hypothesis that wellbeing improvements should come at the cost of growth, especially for lower income countries. Therefore, organising policy incorporating wellbeing indicators doesn’t necessarily result in compromising income but can complement developmental outcomes if done the right way.

Third, the multidimensional nature of the index – encompassing health, education, community vitality, cultural participation, and ecological resilience – helps to showcase progress that a single income figure could miss. This is an important reason why the weak income–happiness correlation and rising GNH index are not contradictory; developmental gains can be broader than what GDP counts.

Culture matters as a long-term developmental asset

Perhaps our single biggest novel finding is that cultural norms matter and is a long-term developmental asset. The dominant institutionalist view treats formal rules – property rights, rule of law, institutional mechanisms – as primary engine of growth, with culture largely downstream (Acemoglu et al. 2001). Several competing traditions give culture an equal or co-equal role: Huntington (2000) argues that cultural values and attitudes are a central feature of developmental progress,, Mokyr (2018) traces Europe’s take-off to a culture that prized inquiry and useful knowledge, while Ang (2016) argues that China grew by improvising institutions to fit local norms rather than importing Western templates. Another more recent strand – where cultural norms display deep historical continuity while institutions can come and go – finds that institutional effectiveness hinges on alignment with those norms, and transplanting designs that ignore them breeds implementation friction and weak legitimacy (Moscona et al. 2026, Balasubramanian and Ghosh 2026).

Bhutan’s experience clearly indicates to us that cultural norms matter. Assimilating relevant cultural norms into policy-making tools such as the GNH index ensures that policy making is more rooted and effective. Norms rooted in the country’s Buddhist heritage, with an emphasis on contentment, community, and environmental stewardship, appear, on balance, to be an asset for its growth prospects rather than an obstacle. GNH exemplifies how a measure of wellbeing that is culture-neutral – whose domains and pillars, for example, can be measured anywhere in the world – becomes more effective for policymaking when assimilated into relevant local cultural norms and values. The persistence of cultural norms (Woessmann and Becker 2011, Tabellini 2010) ensures that a cultural endowment that supplies trust, cooperation, and restraint on runaway material aspirations can be a major component of driving sustainable and inclusive macro-economic growth.

Lessons for other countries assimilating cultural norms

Our research shows that for countries wanting to adapt Bhutan’s GNH, two criteria matter: such an index must be embedded or even derived from local norms so as to garner traction and natural assimilation, and it must be backed by institutions and its mechanisms – such as screening processes, recurring surveys, a budget line – that make it a viable policy tool.

For researchers working on applied macroeconomics, the implication is that cultural endowments deserve a place alongside institutions in the conversation around growth, and not only as frictions to be dissolved. Some cultural configurations are complements to development, and identifying which is an empirical question worth taking seriously.

Bhutan is of course a comparatively small economy, and the lessons from the GNH experience might not be relevant everywhere. But the underlying theme of cultural norms and economic development is an important one that needs to be studied, especially in the context of other Asian countries such as China, India, and Japan, towards greater understanding of their developmental models.

Source : VOXeu