Cultural distance as a determinant of bilateral trade flows: do immigrants counter the effect of cultural differences?

Abstract

We introduce ‘cultural distance’ as a measure of the degree to which shared norms and values in one country differ from those in another country, and employ a modified gravity specification to examine whether such cultural differences affect the volume of trade flows. Employing data for US state-level exports to the 75 trading partners for which measures of cultural distance can be constructed, we find that greater cultural differences between the United States and a trading partner reduces state-level exports to that country. This result holds for aggregate exports, cultural and noncultural products exports as well, but with significantly different magnitudes. Immigrants are found to exert a pro-export effect that partially offsets the trade-inhibiting effects of cultural distance.