Cultural biases in economic exchange

Luigi Guiso, Paola Sapienza, Luigi Zingales

Research output: Contribution to journalArticlepeer-review

725 Scopus citations

Abstract

How much do cultural biases affect economic exchange? We answer this question by using data on bilateral trust between European countries. We document that this trust is affected not only by the characteristics of the country being trusted, but also by cultural aspects of the match between trusting country and trusted country, such as their history of conflicts and their religious, genetic, and somatic similarities. We then find that lower bilateral trust leads to less trade between two countries, less portfolio investment, and less direct investment, even after controlling for the characteristics of the two countries. This effect is stronger for goods that are more trust intensive. Our results suggest that perceptions rooted in culture are important (and generally omitted) determinants of economic exchange.

Original languageEnglish (US)
Pages (from-to)1095-1131
Number of pages37
JournalQuarterly Journal of Economics
Volume124
Issue number3
DOIs
StatePublished - Aug 2009

ASJC Scopus subject areas

  • Economics and Econometrics

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