Cultural Differences and Bilateral Trade: An Empirical Study Based on Industrial Data from OECD and BRIICS Countries

This study extends the cross-sectional gravity function in the Eaton and Kortum model to a panel-data model based on 36 OECD and six BRIICS countries from 2010 to 2018 and introduce heterogeneous technology to measure the competitiveness of each country by interaction fixed effects. The results illu...

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Bibliographic Details
Published in:Emerging markets finance & trade 2023-07, Vol.59 (9), p.2787-2801
Main Authors: Sun, Zao, Li, Yangzi, Wang, Pang Paul
Format: Article
Language:English
Subjects:
Bilateral trade
BRIICS countries
cultural distances
Eaton and Kortum model
OECD countries
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Summary:This study extends the cross-sectional gravity function in the Eaton and Kortum model to a panel-data model based on 36 OECD and six BRIICS countries from 2010 to 2018 and introduce heterogeneous technology to measure the competitiveness of each country by interaction fixed effects. The results illustrate that the total cultural distance between countries significantly impedes bilateral trade, as it increases trade costs. The conclusions are robust with instrumental variables, alternative measurement of cultural differences, and extended time window estimation. And the effects present heterogeneity in sub-dimensions of cultural distance and sub-industries.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2023.2195536