55 Pages Posted: 1 Nov 2013
Date Written: October 30, 2013
Using data on bilateral trade and measures of culture, this paper shows that cultural differences dampen bilateral trade. Moreover, this is the first study to probe Huntington's Clash of Civilizations hypothesis from an economic perspective. We analyze the dynamics of the effect of cultural differences on trade and provide evidence that the negative influence of cultural differences on trade is more prominent in the post-Cold War era than during the Cold War. For instance, two countries with distinct religious majorities have 35% lower bilateral trade flows during the post-Cold War period compared to countries sharing the same majority religion, whereas this negative effect is less than half, at 16%, during the Cold War. In addition, we provide an explanation for the differential impact of cultural differences over time. By mapping out the transition of the effects of cultural and ideological dissimilarities, we show that cold-war ideological blocs are the reason for the suppression of cultural differences during the Cold War.
Keywords: Cold War, culture, economic clash, trade
JEL Classification: F1, Z10
Suggested Citation: Suggested Citation