Gap in Bilateral Trade:A New Understanding of Cultural Heterogeneity

Besides geographical factors,trade cost caused by cultural heterogeneity is also one of the barriers to bilateral trade.Choosing genetic distance as a proxy variable of cross-national cultural heterogeneity,this paper uses weighing method to construct the genetic distance between China and other 110 countries.The genetic distance is supposed to reflect the degree of variation between two populations and the effectiveness of such a cultural variation.Based on Gravity model,this paper then examines the relationship between genetic distance and international trade using panel data from 1996 to 2010.The findings prove that once the geographical variable is determined,the genetic distance becomes a significantly negative factor that contains the size of bilateral trade flow,during which the containing effect increases as time passes by.It is also found that there is a substitution effect between the genetic distance and the geographic distance on bilateral trade.What's more,through further inspection it is found that the genetic distances between China and 24 OECD countries have a greater impediment effect on these bilateral trade flows.As this study uses genetic distance of the year 1500 as an instrumental variable for current genetic distance,and panel IV is considered to have addressed the endogeneity problem,the findings from this empirical analysis claim conservatism.