Cultural Differences and Bilateral Trade: An Empirical Study Based on Industrial Data from OECD and BRIICS Countries

ABSTRACT

This study extends the cross-sectional gravity function in the Eaton and Kortum model to a panel-data model based on 36 OECD and six BRIICS countries from 2010 to 2018 and introduce heterogeneous technology to measure the competitiveness of each country by interaction fixed effects. The results illustrate that the total cultural distance between countries significantly impedes bilateral trade, as it increases trade costs. The conclusions are robust with instrumental variables, alternative measurement of cultural differences, and extended time window estimation. And the effects present heterogeneity in sub-dimensions of cultural distance and sub-industries.

KEYWORDS:

• Bilateral trade
• BRIICS countries
• cultural distances
• Eaton and Kortum model
• OECD countries

JEL:

• F11
• F14
• Z10

Acknowledgments

The authors are grateful to the valuable comments from the Editor and anonymous referees, which has improved the article. Any errors and omissions are our own.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the National Natural Science Foundation of China under Grant No. 71673215 and Grant No.71974158.