Cultural distance

For the most part, such transactions do not actually happen at all. This is in a sense the “missing trade” in the world. It is most visible at the level of countries. As Pankaj Ghemawat shows in World 3.0, the cultural distance between countries is a very strong predictor of bilateral trade levels, and the strength of border restrictions between two countries can be measured in terms of missing trade: the trade that would exist if the border didn’t exist. If I recall correctly, Ghemawat estimates that the missing trade across the US-Canada border (the strongest economic bilateral relationship in the world, grounded in very deep cultural affinity) is missing several trillion dollars.

When they do happen, there is usually a trader-mediated market in the middle, one of whose primary functions is to create a certain amount of anonymity, by obscuring the origins and destinations of goods and services in order to preserve the fictions on either side.

This allows, for instance, ideological foes to trade things like agricultural produce, oil and minerals.

It is no accident that things traded via intermediary trader markets are typically commodities. It is much easier to obscure the origin and destination of things like oil than things like movies. To the extent that a product or service is not  a commodity, it carries with it the values of the producer culture.


I’m not convinced that the US/Canada cultural affinity is that deep. The two seem pretty different; and after the revolution, when the monarchists were chased out of the States, most of them went to Canada.

Also, is the operative thing here really cultural distance in general, or is it cultural distance between elites? The latter is more relevant in things like war: consider that Washington entered America into two wars for the purpose of siding with Britain to crush Germany. (The main reason the Anglosphere didn’t knock Germany back to the Stone Age after WW2 was that USG worried that, if they did that, it would go Communist.) The elites were Anglophiles, but many of the common people were Germans.

One response to “Cultural distance

  1. Pingback: Cultural distance | Reaction Times

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