Cultural Biases in Economic Exchange

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How much do cultural biases affect economic exchange? We answer this ques- Ation by using data on bilateral trust between European countries. We document Athat this trust is affected not only by the characteristics of the country being Atrusted, but also by cultural aspects of the match between trusting country and Atrusted country, such as their history of conicts and their religious, genetic, and Asomatic similarities. We then nd that lower bilateral trust leads to less trade be- Atween two countries, less portfolio investment, and less direct investment, even af- Ater controlling for the characteristics of the two countries. This effect is stronger for Agoods that are more trust intensive. Our results suggest that perceptions rooted in Aculture are important (and generally omitted) determinants of economic exchange.

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Posted: January 3rd, 2011
at 12:52am by Koookiecrumbles


Categories: business,education

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