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Cultural Biases in Economic Exchange?Luigi ZingalesUniversity of Chicago Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of Chicago - Polsky Center for Entrepreneurship; European Corporate Governance Institute (ECGI) Paola SapienzaNorthwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR) Luigi GuisoEuropean University Institute December 2004 CRSP Working Paper No. 601 Chicago GSB Research Paper No. 08-16 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 such as religion, a history of conflicts, and genetic 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 good that are more trust intensive and doubles or triples when trust is instrumented with its cultural determinants. We conclude that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.
Number of Pages in PDF File: 44 working papers seriesDate posted: December 13, 2004 ; Last revised: November 23, 2008Suggested CitationContact Information
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