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Cultural Biases in Economic Exchange?
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1725-6704
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EUI ECO; 2007/42
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GUISO, Luigi, SAPIENZA, Paola, ZINGALES, Luigi, Cultural Biases in Economic Exchange?, EUI ECO, 2007/42 - https://hdl.handle.net/1814/7496
Abstract
How much do cultural biases affect economic exchange? We try to answer this question
by using the relative trust European citizens have for citizens of other countries. First,
we document that this trust is affected not only by objective characteristics of the country
being trusted, but also by cultural aspects of the match between trusting country and trusted
country, such as religion, history of conflicts, and genetic and somatic similarities. We then
find that lower relative levels of trust toward citizens of a country lead to less trade with
that country, less portfolio investment, and less direct investment in that country, even after
controlling for the objective characteristics of that country. This effect is stronger for goods
that are more trust intensive and doubles or triples when trust is instrumented with its
cultural determinants. Our results suggest that perceptions rooted in culture are important
(and generally omitted) determinants of economic exchange.