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Cultural and Institutional Determinants of Bilateral Trade Flows

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Author Info

  • Gert-Jan M. Linders

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Arjen Slangen

    () (Rotterdam School of Management, Erasmus Universiteit Rotterdam)

  • Henri L.F. de Groot

    () (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

  • Sjoerd Beugelsdijk

    () (Radboud University Nijmegen)

Abstract

This paper studies the intangible costs of international trade by extending the basic gravity equation with measures of cultural and institutional distance, and institutional quality. Analyzing a sample of bilateral trade flows between 92 countries in 1999, we find that institutional distance has a negative effect on bilateral trade, presumably because the transaction costs of trade between partners from dissimilar institutional settings are high. In contrast, we find that cultural distance has a positive effect on bilateral trade. A potential explanation for this finding is that firms prefer trade to host-country production in culturally distant countries. Finally, we find that the institutional quality of both the importer and exporter increases the amount of bilateral trade.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-074/3.

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Date of creation: 10 Jul 2005
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Handle: RePEc:dgr:uvatin:20050074

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Related research

Keywords: trade; gravity model; cultural distance; institutions;

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References

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Citations

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Cited by:
  1. Bedassa Tadesse & Roger White, 2010. "Does Cultural Distance Hinder Trade in Goods? A Comparative Study of Nine OECD Member Nations," Open Economies Review, Springer, vol. 21(2), pages 237-261, April.
  2. Luis Angeles, 2012. "Is there a role for genetics in economic development?," Working Papers 2012_02, Business School - Economics, University of Glasgow.
  3. Bala Ramasamy & Matthew C.H. Yeung, 2012. "Ethical distance and difference in Bilateral trade," Working Papers 11012, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
  4. Maureen B.M. Lankhuizen & Thomas de Graaff & Henri L.F. de Groot, 2012. "Product Heterogeneity, Intangible Barriers and Distance Decay: The Effect of Multiple Dimensions of Distance on Trade across Different Product Categories," Tinbergen Institute Discussion Papers 12-065/3, Tinbergen Institute.
  5. Carsten Herrmann-Pillath, 2006. "The true story of wine and cloth, or: building blocks of an evolutionary political economy of international trade," Journal of Evolutionary Economics, Springer, vol. 16(4), pages 383-417, October.
  6. Susanto, Dwi & Rosson, C. Parr, III, 2010. "Cultural Barriers and Agricultural Trade in the Western Hemisphere," 2010 Annual Meeting, February 6-9, 2010, Orlando, Florida 56352, Southern Agricultural Economics Association.

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