Cultural Biases in Economic Exchange?^*

Abstract

How much do cultural biases affect economic exchange? We try to answer this question by using data on bilateral trust between European countries. We document that this trust is affected not only by the characteristics of the country being trusted, but also by cultural aspects of the match between trusting country and trusted country, such as religion, history of conflicts, and genetic and somatic similarities. We then find that lower bilateral trust leads to less trade between two countries, less portfolio investment, and less direct investment, even after controlling for the characteristics of the two countries. This effect is stronger for goods that are more trust intensive. Our results suggest that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.

Bilateral trade of cultural goods

“…and find a positive and significant relationship between measures of genetic distance and cross-country income differences. Guiso et al (2009) also dispute the critique of genetic distance by Giuliano et al (2006).…”

“…We study if bilateral trade is more important when both countries have proximate cultural tastes. The existing literature (Giuliano et al 2006;Guiso et al 2009) uses the level of bilateral trust, genetic or linguistic distances, and historical variables such as the number of wars fought as proxies and/or instruments for cultural proximity. While there is a lot of debate in this literature about the adequacy of each of those variables, a common feature is that they rely on the cross-sectional variance only to measure their impact.…”

“…The impact of bilateral cultural ''affinity'' on trade patterns has been recently analyzed in details in several papers (e.g., Guiso et al (2009) on bilateral trust or Disdier and Mayer (2007) on bilateral opinions). Also related to this literature are the issues of linguistic proximity (Boisso and Ferrantino 1997;Melitz 2008), and past colonial links (Rose 2000;Eichengreen and Irwin 1998) or the link between immigration and trade (Wagner et al 2002).…”

Inventor Diasporas and the Internationalization of Technology

“…As a result, I obtain an index between 0 and 1, where 0 means complete dissimilarity and 1 means that these two languages are almost the same in linguistic terms. 15 Second, the religious heritage of countries is a critical element of their culture and identity (Guiso et al, 2009) …”

Civic Capital as the Missing Link

“…The set of countries sampled varies over time with the enlargement of the European Union: there were 5 in 1970 (France, Belgium, The Netherlands, Germany and Italy), when the first survey was conducted, and has grown to 17 in 1995, the last survey to which we have access. 6 Following Guiso, Sapienza, and Zingales (2009) who first used these data, we have recoded the answers to the trust question setting them to 1 (no trust at all), 2 (not very much trust), 3 (some trust), and 4 (a lot of trust) and have then aggregated responses by country and year computing the mean value of the responses to each survey. Table 3 shows the average level of trust that citizens from each country have toward citizens of other countries.…”