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The Impact of Cultural Aversion on Economic Exchange: Evidence from Shocks to Sino-Japanese RelationsRaymond J. FismanColumbia Business School - Finance and Economics; National Bureau of Economic Research (NBER) Yasushi HamaoUniversity of Southern California - Marshall School of Business - Finance and Business Economics Department Yongxiang WangUniversity of Southern California - Marshall School of Business January 2013 AFA 2013 San Diego Meetings Paper Abstract: We study the impact of cultural aversion on international economic relations by analyzing market reaction to two major adverse shocks to Sino-Japanese relations in 2005 and 2010. Japanese companies with high China exposure decline disproportionately during each event window; Chinese companies with high Japanese exports similarly suffer relative declines. The effect on Japanese companies is concentrated in industries dominated by Chinese state-owned enterprises, where there is greater incentive and ability to intervene, while the negative impact on Chinese firms is primarily for consumer-focused companies. Our results suggest an important impact of cultural frictions on economic relations, and highlight that institutional context is important for understanding the mechanisms underlying this effect.
Number of Pages in PDF File: 34 Keywords: cultural bias, China-Japan relations, consumer sentiment, trade JEL Classification: F13, F51, G14, G15 working papers seriesDate posted: March 15, 2012 ; Last revised: January 17, 2013Suggested CitationContact Information
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