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Does Bilateral Trust Affect International Movement of Goods and Labor

Eva Spring and Volker Grossmann ()

No 4235, CESifo Working Paper Series from CESifo Group Munich

Abstract: Trust in the citizens of a potential partner country may affect the decision to trade with or to migrate to a foreign country. This paper employs panel data to examine the causal impact of such bilateral trust on international trade and migration patterns. We apply instrumental variables (IV) approaches that capture the exogenous variance of bilateral trust separately with eight indicators of genetic (‘somatic’) distance between country-pairs. These indicators work equally well at the first stage. However, second-stage results very much depend on the exact measure employed as instrument. Overall, we find little evidence that bilateral trust affects international movements of goods and labor. More generally, we highlight the potential fragility of IV estimations even when the instruments seem plausible on theoretical grounds and when standard statistical tests confirm their validity.

Keywords: bilateral trust; international migration; international trade; instrumental variables; somatic distance (search for similar items in EconPapers)
JEL-codes: F10 F22 Z10 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Does Bilateral Trust Affect International Movement of Goods and Labor? (2013) Downloads
Working Paper: Does Bilateral Trust Affect International Movement of Goods and Labor? (2013) Downloads
Working Paper: Does Bilateral Trust Affect International Movement of Goods and Labor? (2013) Downloads
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