Understanding the Immigrant–Trade Link
Chapter 6: The Trade-Inhibiting Effects of Cultural Differences: Evidence from Nine OECD Countries
6 The trade-inhibiting effects of cultural differences: Evidence from nine OECD countries A country’s culture can be defined as an amalgam of its population’s shared habits and traditions, learned beliefs and customs, attitudes, norms and values. Cultural dissimilarity between countries thus corresponds with social and institutional dissimilarity and/or information asymmetries. Therefore, cultural differences can serve as a proxy for the extent to which the trust and commitment necessary to initiate trade deals and to complete transactions is lacking. Prior studies that have examined various determinants of trade flows have generally given little attention to the effects of cultural differences. In the few cases where these effects have been examined, a consensus is lacking. Guiso et al. (2005), for example, reports a positive relationship between cultural distance and trade while Linders et al. (2005) and Boisso and Ferrantino (1997) report that greater cultural distance inhibits trade. Several studies have treated the potential effect of cultural dissimilarity as a component of a more broadly-defined set of transaction costs that is often represented by variables which measure the physical distance between trading partners or that identify commonality of language and/or colonial ties. There is a plausible correlation between cultural differences and these variables; however, both common language and colonial ties are, at best, imperfect representations of cultural similarity. Transportation costs – as represented by geographic distance – are also not synonymous with transaction costs. For example, while Mexico and Canada are located at comparable geographic distances from the US, even when accounting for (un)commonality...
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