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Does bilateral trust across countries really affect international trade and factor mobility?

Eva Spring () and Volker Grossmann ()

Empirical Economics, 2016, vol. 50, issue 1, 103-136

Abstract: This paper examines whether bilateral trust across countries affects international trade and migration. Following Guiso et al. (Q J Econ, 2009 ; henceforth GSZ), we capture the exogenous variance in bilateral trust by measuring physical dissimilarities (‘somatic distance’) between country pairs. We employ seven alternative somatic distance indicators in addition to the one by GSZ. As they are all equally valid instruments, it should not matter in two-stage least-squares estimations which one of them we use at the first stage. However, bilateral trust significantly affects international trade only if employing the indicator by GSZ. In the context of international migration, bilateral trust never enters significantly at the second stage. Overall, we find little evidence that bilateral trust and/or cultural proximity affect international trade or migration. Copyright Springer-Verlag Berlin Heidelberg 2016

Keywords: Bilateral trust; Cultural proximity; International migration; International trade; Somatic distance; F10; F22; Z10 (search for similar items in EconPapers)
Date: 2016
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