Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2005-07-10
Number: 05-074/3
Author-Name: Gert-Jan M. Linders
Author-Email: glinders@feweb.vu.nl
Author-Workplace-Name: Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam
Author-Name: Arjen Slangen
Author-Email: aslangen@rsm.nl
Author-Workplace-Name: Rotterdam School of Management, Erasmus Universiteit Rotterdam
Author-Name: Henri L.F. de Groot
Author-Email: hgroot@feweb.vu.nl
Author-Workplace-Name: Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam
Author-Name: Sjoerd Beugelsdijk
Author-Email: s.beugelsdijk@fm.ru.nl
Author-Workplace-Name: Radboud University Nijmegen
Title: Cultural and Institutional Determinants of Bilateral Trade Flows
Abstract: This paper studies the intangible costs of international trade by extending the basic gravity equation with measures of cultural and institutional distance, and institutional quality. Analyzing a sample of bilateral trade flows between 92 countries in 1999, we find that institutional distance has a negative effect on bilateral trade, presumably because the transaction costs of trade between partners from dissimilar institutional settings are high. In contrast, we find that cultural distance has a positive effect on bilateral trade. A potential explanation for this finding is that firms prefer trade to host-country production in culturally distant countries. Finally, we find that the institutional quality of both the importer and exporter increases the amount of bilateral trade.
Classification-JEL: F14
Keywords: trade; gravity model; cultural distance; institutions
File-Url: https://papers.tinbergen.nl/05074.pdf
File-Format: application/pdf
File-Size: 233757 bytes
Handle: RePEc:tin:wpaper:20050074