The Impact of Cultural Aversion on Economic Exchange: Evidence from Shocks to Sino-Japanese Relations
35 Pages Posted: 15 Mar 2012 Last revised: 2 Feb 2014
Date Written: January 2013
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.
Keywords: cultural bias, China-Japan relations, consumer sentiment, trade
JEL Classification: F13, F51, G14, G15
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