 Paris, July 2008
How much do cultural biases affect economic exchange? Luigi Guiso, Paolo Sapienza and Luigi Zingales have tried to answer this question by using the relative trust European citizens have for citizens of other countries. They show that trust between managers in Europe 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. They state 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 economic health of that country. This effect is even stronger for services and goods that are most trust intensive. The effect doubles or even triples when trust is "instrumented" with its cultural determinants. They conclude that historical perceptions rooted in different national cultures and the frequency of war-fare between countries are important determinants of economic exchange, but that they are usually not taken into account during discussions of economic trade. However, Germany and Britain, two countries which were at war sixty years ago trust each other more than they trust the French, the "historical enemy" over many centuries. The full title of the paper is "Cultural Biases in Economic Exchange”, by Luigi Guiso, Paola Sapienza and Luigi Zingales. |
