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Cultural and Institutional Determinants of Bilateral Trade Flows

Author

Listed:
  • 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.

Suggested Citation

  • Gert-Jan M. Linders & Arjen Slangen & Henri L.F. de Groot & Sjoerd Beugelsdijk, 2005. "Cultural and Institutional Determinants of Bilateral Trade Flows," Tinbergen Institute Discussion Papers 05-074/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20050074
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    References listed on IDEAS

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    More about this item

    Keywords

    trade; gravity model; cultural distance; institutions;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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