Abstract
This paper studies the importance of intangible barriers to trade in explaining variation in disaggregate international trade. The analysis is based on a sample of 55 countries for the year 2000. We explicitly focus on the importance of institutional and cultural dimensions of distance. Our results reveal there is substantial heterogeneity in the impact of intangible barriers for different product groups. More specifically, we find that cultural differences do not affect total trade significantly, whereas trade in homogeneous goods is significantly negatively affected. A possible explanation for this pattern is that the substitution effect between trade and FDI is stronger for more differentiated products.
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