Tolerance For Uncertainty and the Growth of Informationally Opaque Industries

Hofstede (1980)’s cross-country psychological survey of IBM employees shows that some countries (societies) are systematically more tolerant of uncertainty, while tolerance of uncertainty is shown by Rigotti et al. (2003)’s model to be essential to the growth of “emerging sectors about which little is known”. We use Durnev, Morck and Yeung (2004)’s methodology to identify these informationally opaque industries. We hypothesize that, countries characterized by high uncertainty aversion (measured by Hofstede’s indicator) will, because of uncertainty aversion, grow disproportionately slower in industrial sectors where information is less available (proxied by lower informativeness of stock prices in the U.S., Durnev et al. 2004). Using the Rajan and Zingales (1998) “differences-in-differences” methodology, in 34 countries and 36 manufacturing industries, we indeed find robust evidence for this pattern of industrial growth. We also show that national uncertainty aversion is not proxying for under-development of financial sector, inadaptability of civil law systems, lower level of economic development, or many other factors. Our results are also robust when we use religious (Protestant/Catholic) composition to instrument for national uncertainty aversion.