Cultural Biases in Economic Exchange?

44 Pages Posted: 13 Dec 2004 Last revised: 23 Nov 2008

Luigi Zingales

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF)

Date Written: December 2004

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.

Suggested Citation

Zingales, Luigi and Sapienza, Paola and Guiso, Luigi, Cultural Biases in Economic Exchange? (December 2004). CRSP Working Paper No. 601; Chicago GSB Research Paper No. 08-16. Available at SSRN: https://ssrn.com/abstract=634210 or http://dx.doi.org/10.2139/ssrn.634210

Luigi Zingales (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-3196 (Phone)
773-834-2081 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paola Sapienza

Northwestern University - Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States
847-491-7436 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Luigi Guiso

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Sallustiana 62
Rome, 00187
Italy
+39 06 4792 4858 (Phone)
+39 06 4792 4872 (Fax)

HOME PAGE: http://www.eief.it/faculty-visitors/faculty-a-z/luigi-guiso/

Paper statistics

Downloads
580
Rank
36,809
Abstract Views
3,954