An Empirical Study On The Influence Of Cultural Distance On Cultural Trade

As countries develop, they increase their consumption of leisure and cultural products. This, in addition to globalization, has caused trade in cultural goods to grow. Trade in cultural products is always more intensively related with transfer of a country’s national identity and customs, and social norms and values, which makes it a heatedly debated and politically sensitive topic in the international negotiations. The realistic significance and political importance of cultural trade, combined with an interest in academic circles in the concept of culture and its economic outcomes, makes a study on cultural trade worthwhile.This study shall identify the determinants of trade in cultural products, with a focus on the influence of cultural distance on cultural trade. Cultural distance reflects how cultures are similar or different from each other in national norms and values.This study chooses to use the most updated version of the Hofstede Model of 2010 to quantify cultural distance. In this model, there are six dimensions for measuring national culture. Hofstede scores each target country from 0 to 100 at each of the six dimensions, i.e. Power Distance, Individualism, Masculinity, Uncertainty Avoidance, Long-term Orientation, and Indulgence, to quantify national culture based on surveys. In this paper, cultural distance between country pairs is calculated by applying the scores each country gets at the six dimensions to the Pythagorean Theorem. Cultural trade data for the year 2010 are selected.One of the main results is that cultural distance exerts negative influences on trade in core cultural products, though the effect is minor. The minor effect is partly because of different effects of the six different cultural dimensions on cultural trade. By regressing individual cultural distance, which is the absolute differences of the scores obtained by two countries at each of the six dimensions, it is found that the two dimensions of Individualism and Uncertainty Avoidance have positive effects while the other four dimensions have negative effects on trade in cultural products.This paper explains the findings from the perspective of how cultural distance affects the way a firm chooses to expand internationally, through export or via FDI. The presumption is that compared with export, FDI requires more commitment and the cost of FDI will increase faster than export when cultural distance becomes greater. The more differences at the two dimensions of Individualism and Uncertainty Avoidance that are directly related with norms and values useful for striking business deals, the less likely firms will go for FDI as it is much more costly. Firms will choose export over FDI to enter the culturally-distant foreign markets, increasing exports. On the other hand, the remaining four dimensions take effects mainly through the demand channel. The more different countries are at these dimensions, the less appealing customers will find the products from the other country, and the less trade flows there will be.Based on the findings and tentative explanations for these findings, the paper provides policy recommendations accordingly. For developing countries that want to increase their cultural exports and exert cultural influence, they should consider narrowing their cultural distance gap between their trading partners by accelerating their process of internationalization to be culturally closer to the world generally. At the same time, countries need to respect each other, and keep in mind that the distinct features of their national characteristics should be preserved. At the company level, it is recommended that a firm should identify the cultural aspects in which its own country and the potential target country are mostly different, and compare the cost of export and FDI before going into a foreign market.