Asymmetric cultural discounting and pattern of trade in cultural products: Empirical evidence in motion pictures

Abstract

AbstractWe extend the seminal home market effect model of Helpman and Krugman (Market structure and foreign trade, MIT Press, Cambridge, MA, 1985) by incorporating asymmetric cultural discounting. In addition to the home market effect, our model predicts that a country subject to a relatively lower cultural discount factor becomes a net exporter as trade liberalisation accelerates. Using international box office revenues in the motion picture industry and developing a measure of asymmetric cultural discount based on tourist‐arrival statistics, we find empirical support for this hypothesis. Our model provides an explanation for the continued cultural dominance of smaller English‐speaking countries in larger non‐English‐speaking countries, which cannot be explained by the home market effect alone.