Does Cultural Proximity and Bilateral Trust Affect International Trade and Migration?

A growing literature suggests that national borders remain important despite policy change and transport improvements because they also capture effects of informal and cultural barriers that can considerably affect international exchange. This doctoral thesis attempts to advance this literature by addressing and answering three research questions that analyze whether cultural proximity and bilateral trust affect international trade and factor mobility. More precisely, it first analyses whether culturally rooted bilateral trust affect international trade or migration. Second, it examines whether this effect is particularly important for the location choices of potential female migrants. Finally, it analysis whether other cultural factors such as religious similarity of country-pairs affect international migration flows. To address these research questions, structural equations are derived from random utility maximization models. These equations are then estimated with recent econometric approaches using international panel data and all results are verified with thorough sensitivity analysis.

The results presented in this thesis offer little evidence in favor of the hypothesis that bilateral trust affects international trade and factor mobility, contradicting a highly cited article published by Guiso, Sapienza, and Zingales (2009 QJE). However, they suggest that cultural factors such as religious similarity between country-pairs play an important role in international migration. On average, bilateral migration rates between two countries sharing the majority religion are estimated to be 136 percent larger than between countries having different religious backgrounds. Moreover, the results suggest that religious similarity is particularly important for individuals moving to countries with small immigrant communities.

This thesis also rises many future avenues of research that can be embedded in the branch of literature analyzing cultural determinants on economic outcomes. This literature gains on importance in the light of recent events such as the revolutions in the Middle East, the appearance of Islamic fundamentalism in some regions of the world, or the conflict in Ukraine. Such events are often accompanied by migration flows which rise the cultural diversity in host countries. In order to benefit from this diversity, future research should increasingly take cultural factors into account.

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