Cultural Biases in Economic Exchange?

Luigi Guiso (), Paola Sapienza () and Luigi Zingales ()

No ECO2007/42, Economics Working Papers from European University Institute

Abstract: How much do cultural biases affect economic exchange? We try to answer this question by using the relative trust European citizens have for citizens of other countries. First, we document that this trust is affected not only by objective characteristics of the country being trusted, but also by cultural aspects of the match between trusting country and trusted country, such as religion, history of conflicts, and genetic and somatic similarities. We then find that lower relative levels of trust toward citizens of a country lead to less trade with that country, less portfolio investment, and less direct investment in that country, even after controlling for the objective characteristics of that country. This effect is stronger for goods that are more trust intensive and doubles or triples when trust is instrumented with its cultural determinants. Our results suggest that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.

Keywords: Culture; beliefs; trade; trust (search for similar items in EconPapers)
JEL-codes: A1 F1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-soc
Date: 2007
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Related works:
Journal Article: Cultural Biases in Economic Exchange? (2009)
Working Paper: Cultural Biases in Economic Exchange (2005)
Working Paper: Cultural Biases in Economic Exchange (2005)
Working Paper: Cultural Biases in Economic Exchange (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:eui:euiwps:eco2007/42

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