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Cultural Biases in Economic Exchange

Author

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  • Luigi Guiso

    (Graduate School of Business University of Chicago)

  • Paola Sapienza
  • Luigi Zingales

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Cultural Biases in Economic Exchange," 2005 Meeting Papers 234, Society for Economic Dynamics.
    • Handle: RePEc:red:sed005:234
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    More about this item

    Keywords

    Culture; Exchange; Trust; Priors;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • F10 - International Economics - - Trade - - - General

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