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Abstract

This study analyzes the impacts of cultural distance on bilateral trade flows in the Western Hemisphere using a Fixed Effects Vector Decomposition (FEVD). Four cultural dimensions of Hofstede are used to capture cultural distance. The results found that the effects of each dimension vary considerably with three of four dimensions (UAI, PDI, and MFI) have a negative impact and one dimension (ICI) has a positive effect. The magnitude of ICI is large enough to offset the negative effects of the other three dimensions resulting in a net positive effect of cultural distance, suggesting that culturally-dissimilar countries trade more than less.

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