Clash of civilizations and the impact of cultural differences on trade

Abstract

This paper studies the Clash of Civilizations hypothesis from an economic perspective. Using data on bilateral trade and measures of culture, we evaluate how the impact of cultural differences on trade evolves over time during and after the Cold War. Evidence suggests that the negative influence of cultural differences on trade is more prominent in the post-Cold War era than during the Cold War. For instance, ethnic differences reduce trade by 24% during the Cold War, whereas this reduction is 52% in the post-Cold War period. We also suggest a channel for the differential impact of cultural differences over time. By studying the evolution of the effects of cultural difference and cold-war blocs on trade, we provide evidence consistent with the hypothesis that cold-war blocs have trumped cultural differences during the Cold War. Thus, cultural determinants of trade replace cold-war blocs as a major impediment to international trade only after the end of the Cold War.