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Tolerance For Uncertainty and the Growth of Informationally Opaque Industries

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  • Rocco Huang

    (University of Amsterdam)

Abstract

Hofstede (1980)’s cross-country psychological survey of IBM employees shows that some countries (societies) are systematically more tolerant of uncertainty, while tolerance of uncertainty is shown by Rigotti et al. (2003)’s model to be essential to the growth of “emerging sectors about which little is known”. We use Durnev, Morck and Yeung (2004)’s methodology to identify these informationally opaque industries. We hypothesize that, countries characterized by high uncertainty aversion (measured by Hofstede’s indicator) will, because of uncertainty aversion, grow disproportionately slower in industrial sectors where information is less available (proxied by lower informativeness of stock prices in the U.S., Durnev et al. 2004). Using the Rajan and Zingales (1998) “differences-in-differences” methodology, in 34 countries and 36 manufacturing industries, we indeed find robust evidence for this pattern of industrial growth. We also show that national uncertainty aversion is not proxying for under-development of financial sector, inadaptability of civil law systems, lower level of economic development, or many other factors. Our results are also robust when we use religious (Protestant/Catholic) composition to instrument for national uncertainty aversion.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0507020.

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Length: 42 pages
Date of creation: 19 Jul 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0507020

Note: Type of Document - pdf; pages: 42
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Web page: http://128.118.178.162

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Citations

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Cited by:
  1. Fidrmuc, Jana P. & Jacob, Marcus, 2010. "Culture, agency costs, and dividends," Journal of Comparative Economics, Elsevier, vol. 38(3), pages 321-339, September.
  2. Guido Cozzi & Paolo Giordani, 2011. "Ambiguity attitude, R&D investments and economic growth," Journal of Evolutionary Economics, Springer, vol. 21(2), pages 303-319, May.
  3. Roxana Mihet, 2012. "Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis," IMF Working Papers 12/210, International Monetary Fund.
  4. Anderson, Christopher W. & Fedenia, Mark & Hirschey, Mark & Skiba, Hilla, 2011. "Cultural influences on home bias and international diversification by institutional investors," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 916-934, April.
  5. Giordani, Paolo E. & Schlag, Karl H. & Zwart, Sanne, 2010. "Decision makers facing uncertainty: Theory versus evidence," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 659-675, August.
  6. Tamini, Lota D., 2012. "Optimal quality choice under uncertainty on market development," MPRA Paper 40845, University Library of Munich, Germany.
  7. Gilad D. Aharonovitz & Nathan Skuza & Faysal Fahs, 2009. "Can Integrity Replace Institutions? Theory and Evidence," CESifo Working Paper Series 2730, CESifo Group Munich.
  8. Feijen, Erik, 2005. "Do incumbents manipulate access to finance during banking crises?," Policy Research Working Paper Series 3660, The World Bank.
  9. Rocco Huang, 2005. "Distance and Trade: Disentangling unfamiliarity effects and transport cost effects," International Trade 0511010, EconWPA.
  10. Pascal L. Ghazalian, 2012. "Home Bias in Primary Agricultural and Processed Food Trade: Assessing the Effects of National Degree of Uncertainty Aversion," Journal of Agricultural Economics, Wiley Blackwell, vol. 63(2), pages 265-290, 06.

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