DP7438 Product-Based Cultural Change: Is the Village Global?
This paper makes three contributions to the growing literature on culture and economics. Using answers to the World Values Survey for a sample of 79 countries over the 1989-2004 period, we first provide evidence of cultural homogenization between countries. Second, we provide a model of product-based cultural change. Our main theoretical predictions are: (i) bilateral trade openness reduces bilateral cultural distance; (ii) the more differentiated the products, the more trade reduces cultural distance; (iii) trade openness has a lock-in effect on culture. Third, we test the model using an instrumental variable approach and including various time and country-pair fixed effects. We find that a one standard deviation increase in bilateral trade openness translates into a 43% standard deviation decrease in bilateral cultural distance.