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Does bilateral trust across countries really affect international trade and factor mobility?

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  • Eva Spring
  • Volker Grossmann

Abstract

This paper examines whether bilateral trust across countries affects international trade and migration. Following Guiso et al. (Q J Econ, 2009 ; henceforth GSZ), we capture the exogenous variance in bilateral trust by measuring physical dissimilarities (‘somatic distance’) between country pairs. We employ seven alternative somatic distance indicators in addition to the one by GSZ. As they are all equally valid instruments, it should not matter in two-stage least-squares estimations which one of them we use at the first stage. However, bilateral trust significantly affects international trade only if employing the indicator by GSZ. In the context of international migration, bilateral trust never enters significantly at the second stage. Overall, we find little evidence that bilateral trust and/or cultural proximity affect international trade or migration. Copyright Springer-Verlag Berlin Heidelberg 2016

Suggested Citation

  • Eva Spring & Volker Grossmann, 2016. "Does bilateral trust across countries really affect international trade and factor mobility?," Empirical Economics, Springer, vol. 50(1), pages 103-136, February.
    • Handle: RePEc:spr:empeco:v:50:y:2016:i:1:p:103-136
    DOI: 10.1007/s00181-015-0915-1
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    2. Yann Algan & Pierre Cahuc, 2010. "Inherited Trust and Growth," American Economic Review, American Economic Association, vol. 100(5), pages 2060-2092, December.
    3. Melitz, Jacques & Toubal, Farid, 2018. "Somatic distance, cultural affinities, trust and trade," CEPR Discussion Papers 12895, C.E.P.R. Discussion Papers.
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    5. Ndubuisi, Gideon, 2020. "Trust and R&D investments: evidence from OECD countries," Journal of Institutional Economics, Cambridge University Press, vol. 16(6), pages 809-830, December.
    6. Matteo Fiorini & Giorgia Giovannetti & Mauro Lanati & Filippo Santi, 2021. "Asymmetric cultural proximity and greenfield foreign direct investment," The World Economy, Wiley Blackwell, vol. 44(9), pages 2572-2603, September.
    7. Ndubuisi, Gideon & Konte, Maty, 2019. "Credit constraints and trade performance: Does trust-based social capital matter?," MERIT Working Papers 2019-046, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Tim Krieger & Laura Renner & Jens Ruhose, 2015. "Genetic Distance and International Migrant Selection," CESifo Working Paper Series 5453, CESifo.
    9. Chiara Franco & Daniela Maggioni, 2022. "Does international trade favor proximity in cultural beliefs?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(3), pages 449-477, September.
    10. Jacques Melitz & Farid Toubal, 2019. "Somatic distance, trust and trade," Review of International Economics, Wiley Blackwell, vol. 27(3), pages 786-802, August.
    11. Liu, Min & Su, Cong & Wang, Fangfang & Huang, Liangxiong, 2020. "Chinese cross-border M&As in the “One Belt One Road” countries: The impact of Confucius Institutes," China Economic Review, Elsevier, vol. 61(C).
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    Keywords

    Bilateral trust; Cultural proximity; International migration; International trade; Somatic distance; F10; F22; Z10;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • Z10 - Other Special Topics - - Cultural Economics - - - General

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