Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86640
Authors: 
Linders, Gert-Jan M.
Slangen, Arjen
de Groot, Henri L.F.
Beugelsdijk, Sjoerd
Year of Publication: 
2005
Series/Report no.: 
Tinbergen Institute Discussion Paper 05-074/3
Abstract: 
This paper studies the intangible costs of international trade by extending the basic gravity equation with measures of cultural and institutional distance, and institutional quality. Analyzing a sample of bilateral trade flows between 92 countries in 1999, we find that institutional distance has a negative effect on bilateral trade, presumably because the transaction costs of trade between partners from dissimilar institutional settings are high. In contrast, we find that cultural distance has a positive effect on bilateral trade. A potential explanation for this finding is that firms prefer trade to host-country production in culturally distant countries. Finally, we find that the institutional quality of both the importer and exporter increases the amount of bilateral trade.
Subjects: 
trade
gravity model
cultural distance
institutions
JEL: 
F14
Document Type: 
Working Paper

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