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Guiso, L. Sapienza, P., Zingales, L. (2009). Cultural biases in Economic Exchange? Quarterly Journal of Economics 124 (3): 1095-1131.

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.

Authors

Guiso, Luigi

Prof. Guiso joined the Institute in January 2007 from Università di Roma Tor Vergata. He has been visiting professor at the University of Chicago, Graduate School of Business. He is a Fellow of the Centre for Economic Policy Research, London and Director of the CEPR Finance Programme. He...

Sapienza, Paola

Paola Sapienza is a professor of finance at the Kellogg School of Management. She also serves as a faculty fellow for the Zell Center for Risk Research, a research affiliate of the Center for Economic Policy Research and a faculty research fellow in the National Bureau of Economic Research's...

Zingales, Luigi

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