Cultural Biases in Economic Exchange?

How much do cultural biases affect economic exchange? We 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...

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Bibliographic Details
Published inThe Quarterly journal of economics Vol. 124; no. 3; pp. 1095 - 1131
Main Authors Guiso, Luigi, Sapienza, Paola, Zingales, Luigi
Format Journal Article
LanguageEnglish
Published Oxford MIT Press 01.08.2009
Oxford University Press
Subjects
Bias
Bilateralism
Culture
Impact analysis
International borders
International trade
Perceptions
Portfolio investments
Proxy reporting
Proxy statements
Statistical significance
Studies
Trade
Transportation costs
Trust
Working papers
Europe
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Summary:How much do cultural biases affect economic exchange? We 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 their history of conflicts and their religious, 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.
Bibliography:ark:/67375/HXZ-SMKTGLSB-K
istex:2AA73689D00C3BF8CB6B3BA05D8AF377B096F82C
ISSN:0033-5533
1531-4650
DOI:10.1162/qjec.2009.124.3.1095