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JOURNAL OF THE ASIA PACIFIC ECONOMY 2019, VOL. 24, NO. 2, 313-327 Routledge ROUTLEDGE https://doi.org/10.1080/13547860.2019.1602905 Taylor & Francis Group () Check for updates Can trading partner cultural diversity explain trade? Azmat Gani and Frank Scrimgeourb Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman; Department of Economics, Waikato Management School, The University of Waikato, Hamilton, New Zealand ABSTRACT KEYWORDS The importance of culture on economic outcomes has been an Culture; New Zealand; Asia; element of ongoing research mainly in the disciplines outside of trade; religion; language mainstream economics such as sociology and anthropology. From an economic perspective, there is a strong feeling among the cor- JEL CLASSIFICATION porate community that culture can be influential in business deal- F1; 05; Z1 ings. International trade is one area of business where cultural diversity can matter. This paper investigates the effect of trading partner cultural diversity on trade within the gravity model frame- work. The gravity model incorporates four measures to capture cultural diversity: religion, ethnicity, language and legal origin. Using data on New Zealand's trade with Asia and employing the panel corrected standard errors estimation procedure, the empire ical findings reveal that Asian diversity in religion and languages is positively correlated with New Zealand-Asia trade. The results reveal that the expected effects of standard gravity variables, and we conclude that the cultural diversity of trading partners posi- tively influences international trade. 1. Introduction Culture, generally defined as those customary beliefs and values that ethnic, religious and social groups transmit from one generation to another generation (Guiso, Sapienza, and Zingales 2006) is rarely researched in international trade. In economic analysis, it is usually assumed to be constant. Guiso, Sapienza, and Zingales (2006) note that much of the reluctance to utilise culture as a variable in the analysis of eco- nomic phenomena is that the term is so broad, and the paths through which it can enter economic discourse are so ubiquitous that it is challenging to design testable and refutable hypothesis. These authors also note that as the discipline of economics increased its mathematical sophistication, many economists felt no need to introduce additional explanatory variables such as culture. Given the absence of testable hypoth- eses and numerical measures that would precisely capture cultural attributes, econom- ics has afforded less attention to the role of culture in explaining economic outcomes. A review of recent literature from economics as well as other social science disciplines gives a strong sense that culture may have a role in explaining economic outcomes. The literature seems to converge on a cohesive and robust conceptual framework that gives a CONTACT Azmat Gani azmat@squ.edu.om 2019 Informa UK Limited, trading as Taylor & Francis Group314 A. GANI AND F. SCRIMGEOUR JOURNAL OF THE ASIA PACIFIC ECONOMY 315 clear direction and forms a platform so that the bearing of culture on economic out- based and manufactured products. Rising per capita incomes and the emergence of comes can be a subject of investigation. One area in the economic analysis where cul- the middle-class population in Asia is fostering increased tourism as Asian consumers tural diversity can be hypothesised to be influential and a vital lever affecting outcomes strongly respond to New Zealand as a favoured holiday destination (Gani and Clemes is international trade. While trade theory makes it clear that country endowments deter- 2016). To that end, cultural diversity can be critical in terms of facilitating trade with mine trade, the level of technology, preferences and the degree of competition in the glo- better cultural understanding and without excessive constraints and additional costs bal trading environment (Dollar and Kraay 2004); cultural diversity can also be borne by entrepreneurs on both sides. fundamental to the effective functioning of market-based economies and countries with New Zealand's Asian trade partners considered in this study are China, Indonesia, open economic systems. The additional value of culture can be relevant to commercial Japan, Republic of Korea, Malaysia, Philippines, Singapore, Thailand and India. It activities such as international trade. This also has much relevance to work on people's should be noted that New Zealand trades with countries in Asia other than those well-being by Dalziel, Saunders, and Saunders (2018). These authors in their seminal listed above. The choice of the above nine countries is primarily based on the extent book entitled 'Wellbeing Economics - The Capabilities Approach to Prosperity' have of New Zealand's exports and imports in the last decade and the availability of time argued that economic activities should contribute to the well-being of the people. consistent published data on the key variables. The cross-country nature of estimation International trade can bring about the right change in people including enhanced cul- required time consistent data for all countries across all variables of interest. The data tural understanding as well as nation's well-being. used are annual for years 2003-2012. The core purpose of this paper is to examine if trading partner cultural diversity Using the gravity model framework, this paper examines if Asian cultural diversity matters for trade by incorporating cultural capital into a culture trade framework. matters for New Zealand's trade. Augmented trade equations comprising New Zealand's Our study is aimed at investigating the dimensions of culture that impacts an essen- exports to and imports from Asia are estimated using pooled cross-country data for the tial economic outcome, that is, international trade. It attempts to examine the causal period 2003-2012. The standard gravity model variables influencing trade are tested. By effects of various inherited quantifiable measures of culture on trade. Given the intent controlling for standard gravity variables, we attempt to disentangle the effects of culture of the study, that is if Asian cultural diversity matters for New Zealand's trade, we on trade and determine the significance of its impact on trade empirically. adopt Guiso, Sapienza, and Zingales (2006) definition of culture. According to Guiso, The rest of this paper has five sections. In Section 2, a discussion of the conceptual Sapienza, and Zingales (2006), culture includes 'those customary beliefs and values framework connecting culture and economic outcomes is provided. Section 3 presents that ethnic, religious, and social groups transmit fairly unchanged from generation to the context of analysis. Section 4 presents the findings. Section 5 concludes. generation'. We focus here on the measurable dimensions of culture that are likely to impact economic outcomes. While the mainstream trade literature has identified significant correlates of trade, 2. Culture and economic outcomes: the conceptual framework whether or not cultural diversity can facilitate an increase in trade remains an The economy-wide effects of trade have been comprehensively addressed in the the- unanswered empirical question. This issue is worth investigating in the New oretical and the empirical literature, for example, Dowrick and Golley (2004), Zealand-Asia trade context given New Zealand's strong initiatives to engage with Anderson et al. (2010), Berg, Ostry and Zettelmeyer (2012), Ferrarini (2012), Gani Asian countries in terms of trade, foreign investment, development aid and inter- and Scrimgeour (2016), Maroof et al. (2018) and Yay and Aksoy (2018). Singh (2010) national diplomacy. Trade statistics for the last decade indicate strong growth in New provides an extensive survey of the microeconomic and macroeconomic evidence on Zealand's trade with the Asian countries as a result of New Zealand's continued the gains from trade. efforts in negotiating and signing of several free trade agreements with Asia (see, eg The extant trade literature demonstrates that trade generally has a positive impact Poot and Strutt 2010). Recent events in the global economic environment such as the on the prosperity of nations. Countries throughout the world are aiming to expand global financial crisis that originated in the USA in 2007 encouraged New Zealand to their trade and become more integrated into the global trading system to achieve secure a more diversified export market base to cushion the unforeseen risks of eco- higher levels of income and economic growth (Falvey, McGregor, and Khalid 2013). nomic recessions in its major export markets. In a recent study, Butcher, Spoonley, Historically, international trade has positively contributed to rapid economic transfor- and Gendall (2015) observed that New Zealanders' are mainly positive about the eco- mations of economies. The relatively recent impact on developing economies in Asia nomic benefits of the realignment from Europe to Asia. One aspect of Asia that is and Sub-Saharan Africa including large countries such as China and India is note- likely to influence the New Zealand-Asia trade relationship is an understanding and worthy. Much of the extensive empirical literature on trade provides strong evidence appreciation of Asian cultural diversity in business matters. that international trade in goods and services delivers a positive impact on the long- To date, no study has empirically investigated this issue in the New Zealand-Asia term economic growth and development of nations (eg Santos-Paulino 2005). context. In this rapidly globalising world, New Zealand like other countries desires to The argument is that for countries to fully integrate into the global trading enviro achieve greater participation in, and reap the benefits of the progressive Asian eco- onment and to benefit from outward-oriented trade strategies, the diversity in trading nomic environment that offers a potentially large market for New Zealand's land- partner's culture may also play an integral role in the success of international316 A. GANI AND F. SCRIMGEOUR JOURNAL OF THE ASIA PACIFIC ECONOMY 317 businesses including international trade. One of the earliest studies identifying the places that are open and possess low entry barriers for people to gain creativity role culture had in contributing to capitalism was that of Max Weber (1905 [2001]). advantage from their ability to attract people from a wide range of backgrounds. Other Weber (1905 [2005]) regarded religion as crucial to the development of capitalism, things held constant, more open and diverse places are likely to attract greater numbers stating that the Protestant Reformation taught that the pursuit of wealth that should of talented and creative people - the sort of people who power innovation and growth. be considered not merely as an advantage, but as a duty. Florida (2002, 79) concluded that 'diversity is a fundamental maker of creative Recent literature also reveals that religion can influence the establishment of mar- class values and members of the creative class strongly favour organisations and envi- kets. Each of the major faiths has some mechanism for promoting work efforts and ronments in which they feel that anyone can fit in and can get ahead'. Florida (2005) wealth accumulation that contributes to economic success (Mccleary and Barro characterises a 'creative class' as promoting 'openness to diversity of all kinds'. In 2006). Mccleary and Barro (2006) building on Weber's work argues that religious their study, Ramasamy and Cremer (1998) noted that New Zealand's sister-city rela- beliefs are what matters for economic outcomes. They say that religious beliefs affect tionship with the Asian centres fostered close cultural and economic links the economy by fostering work ethics, honesty (as well as trust), thrift, charity, hospi- From an economic perspective, the relationship between culture and growth can tality to strangers and so on (Mccleary and Barro 2006). Mccleary and Barro (2006) be traced back to the institutional school of thought. The original institutionalists: note that the social capital and cultural aspects of religion - communal services, rit- Thorstein Veblen, John Commons and Walton Hamilton continue to influence the uals, religious schools - are significant only to the extent that they influence beliefs, long-run welfare of nations and matter in the current discussion of culture and eco- and, hence, behaviours. These authors also note that for given beliefs more time spent nomic prosperity. John Commons (1934), whose intellectual legacy of institutionalism on communal activities would tend to be an economic drag, as measured by market s well evaluated by Hodgson (2003), defined an institution as collective action in output. In their study, Quer, Claver, and Rienda (2017) found a negative impact of control of individual action where collective actions ranged from unorganised custom cultural distance on multinational enterprises location decisions in China and India. to organised going concerns (quoted in Neale 1987, 1178). According to Walton Much of the earlier works on the links between culture and economics has been Hamilton, institutions connotes a way of thought or action of some prevalence and from authors outside the domain of mainstream economics, for example, Hirschman (1967) and Banfield (1958). Banfield (1958) attributes the underdevelopment of permanence, which is embedded in habits of a group or customs of a people', (quoted in Hodgson 1993, 7). Walton Hamilton, drawing heavily from the work of Thorstein Southern Italy to the excessive pursuit of narrow self-interest by its inhabitants. The Veblen argued that human nature is active and goal seeking and that humans act in importance of culture and its impact on economic outcomes have been an element of culturally conditional ways - that is, their actions are learned (quoted in Radzicki ongoing research and investigation in the disciplines of sociology and anthropology for several decades. For example, Richerson and Boyd (2005) argued that there is 2003). Thus, within these original institutionalists line of thought, cultural diversity ample evidence that culture impacts economic behaviour. certainly mattered for societal progress, leading to the emergence of new ideas, The merits of cultural diversity and its relationship with economic and societal norms, attitudes and values; all essential ingredients of societal productivity and welfare are also explained within the framework of the social capital theory, much of embedded in habits of people. which has its origins in Robert Putnam's (1993 and 2000) work on local politics in The theoretical foundations of the original institutionalists still matter and have re- contemporary Italy. Putnam (1993) showed that through social interaction individuals emerged among the new institutionalists, for example, Williamson (1975) and North get more involved, and engage in social networks that nourish trust and an under- (1990 and 2005) who argue that institutions are fundamental to the effective functioning standing of the nation. The more extensive the network an individual has, the higher of market-based economies. Williamson (1975) in his analysis of the interaction between the exposure to heterogeneous economic dealings or social negotiations. formal political constraints and informal institutions found that the existence of well- Putnam (1995) and Fukuyama (1995) have argued that only nations with high lev- developed institutions is a strong determinant of economic development. According to els of trust can develop large scale organisations that are needed to compete in a North (2005), the institutional structure is a combination of formal rules (constitutions modern economy. Knack and Keefer (1997) and Knack and Zak (2001) show that the and laws), informal constraints (norms of behaviour, conventions, codes of conduct) and level of trust within a community affects economic performance. Guiso, Sapieza, and their enforcement characteristics. This literature from institutional economics perspec- Zingales (2004) in their study examine the importance of trust on international bilat- tives, for example, North (1990 and 2005), Knack and Keefer (1997), Barro and eral trade among European countries. They find that trust matters for all these trans- Mccleary (2003), and Licht et al. (2007) provide some theoretical and empirical support actions: the more a country trusts another, the more it tends to exchange goods and to the argument that informal rules and culture shape economic outcomes. financial assets and engage in direct investment. The expansion of work on economic institutions in the late 1990s and early 2000, Another notable example of culture shaping economic outcomes have emerged encouraged economists to go beyond formal institutions to informal institutions from the works of Florida (2003). In his work on Cities and Creative Class, Florida which led them to look at the effect of culture explicitly. For example, Landes (1998) (2003, 11) made the argument that emphasised that links from culture to beliefs and values and from beliefs and values to economic outcomes. A discussion of the direct association between economic per- formance and culture is presented by Guiso et al. (2006). Licht et al. (2007), Tabellini318 A. GANI AND F. SCRIMGEOUR JOURNAL OF THE ASIA PACIFIC ECONOMY 319 (2008a and 2009) and Guiso, Sapienza, and Zingales (2006) provide a comprehensive framework that includes measures that capture aspects of culture on the economic discussion of historical perspectives on economics and culture. Tabellini (2009) in his welfare of nations. This issue is addressed in Section 3. study of culture and institutions in economic development across regions of Europe finds a robust causal relationship between culture and economic growth across 3. Model and data European countries. Williamson and Mathers (2011) argued that culture and eco- nomic freedom are both independently crucial for economic prosperity. Williamson The empirical analysis is formulated by the argument that cultural diversity can be and Mathers (2011) claimed that a culture conducive to economic growth might influential in determining trade. The gravity equation is a standard analytical frame- choose to formalise the informal institutions associated with economic freedoms. work for the prediction of bilateral trade flows. It relates a measure of bilateral trade These authors also note that culture provides the institutional rules governing eco- to the economic mass of the two countries and the distance between them. The grav- nomic activity and leads to higher economic growth. A culture rich in trust prompts ity model has been widely used, particularly in the analysis of trade flows from one exchanges. The combination of trusting culture and government that enforces laws country and or region to another (reviewed in Martinez-Zarzozo, 2003). Within the against predation and honouring private property rights is key to large sustained scale framework of the gravity model (eg, Anderson 1979; Bergstrand 1985; Anderson and economic growth (Williamson and Mathers 2011). van Wincoop 2004; and Egger 2008); the general model is specified as follows: Using a multi-country data sets Knack and Keefer (1997) and La Porta et al. (1997) observed a positive correlation between trust and economic development. Tijt = (Yijt, Pij.t) Dit, (1) Religious diversity can influence economic outcomes. Maseland and van Hoorn (2010) characterise that religious beliefs and ideology as exogenous inputs to political where T is bilateral trade, Y is the gross domestic product (GDP), P is the population, and economic behaviour. For example, Barro and Mccleary (2003) and Mccleary D is the geographic distance between the two countries, i and j are the countries and Barro (2006) reveal the political and economic outcomes of religion and cultural (New Zealand and Asia) and t is the time. Introducing the effect of Asian cultural beliefs and values. Glahe and Vorhies (1989) show that Judeo-Christian liberal values diversity, the standard gravity equation (1) becomes Equation (2). are conducive to economic development. Friedman (2006) argued that while economic growth makes a society more open, Tijt = (Yit Yit), (Pi,tPit) Dij, 2 Culture, nij, (2) tolerant and democratic; such societies are, in turn, better able to allow enterprise and creativity and hence achieve greater economic prosperity. Friedman (2006) also where 2 is a vector of cultural diversity variables and n is the error term. The estim- argued that specific characteristics of personal behaviour are essential for economic able form of Equation (2) is specified in Equation (3). growth and when these characteristics acquire moral status the resulting ethic encour- ages people to behave accordingly. (In) TNZ-Asia = 4 +0cp, (In) YNZ + 42(In) YAsia +43 (In) PNZ + 4(In) PAsia + 45(In) DNZ-Asia Another strand of economic literature that takes strong note of cultural diversity + (In) 46RERNZ-Asia + 4, (In) Religion Asia + 48(In) EthnicityAsia and its contribution to economic prosperity is the migration literature. For example, + (In) 4,LanguageAsia + 910Legal - Origin Asia + 1NZ-Asia Gibson and Mckenzie (2011) argued that in many developed countries immigrants (3) constitute essential shares of the skilled labour force in many professions. Emigrants come from a variety of cultural, language and socio-economic backgrounds and when where In is natural logarithm, u is the residual, i is the country and t is the period. these attributes are channelled into entrepreneurial activities, it can produce beneficial We also add real foreign exchange rates to measure a country's international price economic outcomes. Empirical evidence from growth models such as Barro (1997) competitiveness as it is regarded as a critical determinant of a country's international and Barro and Sala-i-Martin (2004) and others reveal that it is human capital with trade in goods and services (Pugel 2004). In Equation (3), religion, ethnicity, language skilled labour component that has the most significant impact on economic activity. and legal-origin are our four measures of cultural diversity. In the estimation phase, In their recent study, Gibson and Mckenzie (2014) noted that highly skilled diaspora we estimate separate export and import equations using the same right-hand side var- might facilitate knowledge transfer from the host countries since ethnic, scientific and iables as shown in Equation (3). These are expressed in Equations (4) and (5) where entrepreneurial channels enhance the transfer of codified and tacit knowledge regard- EXP is exports and IMP is imports. ing innovations. Migrations are an essential channel for both knowledge acquisition and knowledge transfer for researchers in small countries (Gibson and Mckenzie (In) EXPNZ-Asia = 1+02, (In) YNZ + 22(In) YAsia + As (In) PNZ + 24 (In) PAsia + As (In) DNZ-Asia 2012 and 2014). Based on the above conceptualisation of culture and economic outcomes, the effect + (In) 26RER,Z-Asia + 27(In) Religion Asia + Ag (In) EthnicityAsia of trading partner cultural diversity on trade can be examined through an empirical + (In) 2, LanguageAsia + AjoLegal - Origin Asia + n NZ-Asia (4)322 A. GANI AND F. SCRIMGEOUR JOURNAL OF THE ASIA PACIFIC ECONOMY 323 Table 1. Estimates of standard gravity variables. Table 3. Sensitivity tests of cultural diversity variables within the gravity model framework. Panel corrected standard Panel corrected standard errors estimation Cross-sectional estimation errors estimation Variable Exports Imports Variable Exports Imports Exports Imports Constant 16.334 (1.665)*** 22.746 (1.901)*** Constant 5.419 (0.335) -6.568 (0.463) 10.351 (0.508) 2.226 (0.136) (In) Youz -3.555 (3.920)* -3.114 (2.365)* (In ) YNZ -1.019 (0.733) -1.954 (1.201 1.264 (0.683) -1.543 (0.788 (In) PN 3.741 (2.224)* 2.738 (1.054) (In) piz 1.271 (0.511) 3.499 (1.204) 1.297 (0.499) 2.122 (0.632) (In) yAsia 1.242 (17.440) 1.185 (9.817) (In ) yAsia 0.564 (18.660) 0.583 (15.210)* 0.603 (17.700)* 0.631 (15.420)* (In) pAsia -0.439 (8.755)* -0.415 (5.047)* (In) pAsia -0.081 (3.410)* -0.098 (3.698) -0.096 (3.425)* -0.119 (4.201)* (In) DNZ-Asia -0.529 (2.785)* -0.676 (2.148)** (In) DNZ-Asia -1.506 (6.354)* -1.458 (5.198) -1.378 (4.702)* -1.093 (2.822)* (In) RER -0.528 (2.020)** -0.497 (1.222) (In) RER 0.461 (1.672)** * 0.718 (2.043)* 0.240 (0.728) 0.172 (0.386) (In) Religion,-1 0.180 (6.874)* 0.152 (4.190)* Number of observations 90 80 90 80 (In)Ethinicity- -0.752 (10.160) -0.664 (4.845)* F-statistics 75.18 65.86 50.75 44.6 (In)Language,-1 0.342 (8.077)* 0.281 (3.077)* Buse R2 0.84 0.84 0.78 0.78 (In)Legal-Origin -0.485E-05 (1.117) -0.052E-05 (0.796) Rho -0.86 -0.22 ... ... Number of observations 80 80 Durbin-Watson 2.15 2.13 2.38 2.30 F-statistics 150.17 41.95 Heteroskedasticity (x 8 df) 13.78 6.23 Buse R 0.94 0.85 B-P statistics (x 36 df) 24.38 31.85 Rho -0.13 ... Note. t-statistics are in parentheses Durbin Watson 1.73 2.15 * ** and *** indicates statistically significant at the 1%, 5% and 10% levels, respectively. Heteroskedasticity (x 8 df) 62.88 ... means variable not tested. B-P statistics ( 36 df) 33.07 Note. t-statistics are in parentheses. *, ** and *** indicates statistically significant at the 1%, 5% and 10% levels, respectively. Table 2. Estimates of cultural diversity variables within the gravity model framework. ... means variable not tested. Cross-sectional estimation Panel corrected standard errors estimation consistently negative and statistically significant in both export and import models, Variable Exports Imports Exports Imports consistent with the findings of gravity models. Constant 10.779 (0.765) 1.469 (0.809) 1.079 (0.057) -0.525 (0.036) In) NZ -0.098 (2.511)* -4.519 (3.150) -3.139 (1.986)* -3.450 (2.246)** In the third stage of our estimation, we conduct a sensitivity analysis of the culture (In)PNZ 4.527 (1.952)** 6.375 (2.544)* 5.129 (2.136)** 5.445 (2.092)** variables. We conduct our sensitivity test by re-estimating our main regressions, (In) YAsia 0.570 (22.150)* 0.849 (13.720)* 0.592 (15.880)* 0.798 (9.469)* (In) pAsia 0.012 (0.492) -0.305 (5.659)* 0.010 (0.333 0.244 (3.327)* replacing the cultural diversity variables (religion, ethnicity and language) with their (In)DNZ-Asia -1.615 (4.100)* 0.962 (1.890)*** 1.518 (2.908) -0.947 (1.471) one period lag. The results of the sensitivity test are presented in Table 3. Coefficients (In)RER -0.252 (0.988) -0.238 (0.741 -0.245 (0.781) -0.443 (1.948)** (In)Religion 0.389 (3.162)* -0. 196 (3.689) 0.502 (3.157)* -0. 167 (2.438)** religion and language are as expected, positive and statistically significant at the 1% (In)Ethnicity -0.171 (2.669)* 0.047 (0.666) 0.204 (2.378)** -0.004 (-0.040) level. The findings suggest that of the four cultural variables, Asian religion and lan- (In)Language 0.033 (0.730) 0.294 (9.003)* -0.009 (0.142) 0.268 (4.301)* (In)Legal-Origin -0.0007 (4.875)* -0.166E-04 (3.307)* -0.0008 (4.385)* -0.1 13E-04 (1.700)*** guage are found to determine New Zealand's trade positively. This is an important Number of observations 90 80 90 80 finding in terms of fostering the reliable and stable business relationship between F-statistics 105.6 105.3 49.64 43.7 Buse R2 0.92 0.92 0.86 0.86 New Zealand traders and their Asian counterparts. Overall, the results of our cultural Rho -0.003 -0.11 variables do lead to the suggestion that culture can positively impact trade. It can Durbin Watson 1.76 2.12 1.87 2.10 Heteroskedasticity (7 8 df) also be suggested that long-term trade relations can be fostered by a good cultural . . . 22.356 21.39 B-P statistics (x 36 df) 27.935 23.08 understanding among the trading partners. Vote. t-statistics are in parentheses. These findings of the statistically significant effect of Asian cultural variables on *, ** and *** indicates statistically significant at the 1%, 5% and 10% levels, respectively. . means variable not tested. New Zealand-Asia trade provides new knowledge and add a new dimension towards understanding how cultural understanding and respect influence trading partner cap- Another variable that has a positive influence on New Zealand's trade with Asia is acity to enhance trade. Our findings lend support to the broader roles of culture and language. Our findings in Table 2 reveal that coefficient language is positive and stat- its effect on the economic prosperity of nations as noted earlier by studies such as istically significant at the 1% level. This finding also suggests that diversity in spoken Landes (1998), Guiso et al. (2006), Maseland and van Hoorn (2010) and Williamson languages in Asia positively influences New Zealand's imports from Asia and that and Mathers (2011). language skills can make a positive contribution to the overall success of firms engage Our findings add more value to understanding the cultural effect on trade. It is ing in international trade. Coefficients for ethnicity and legal origins are negative and worth noting that New Zealand's trade policies are aimed at reducing barriers with contrary to our expectations. In terms of gravity model variables, our results consist- trading partners. Since trade is fostered by New Zealand's policies of greater regional ently reveal a significant positive correlation of New Zealand's population and Asian integration within the Asia Pacific region, it is assumed that trade is also likely to GDP with New Zealand's exports to and imports from Asia. Coefficient distance is bring New Zealand's trading partners closer together and cultural norms and beliefs324 A. GANI AND F. SCRIMGEOUR JOURNAL OF THE ASIA PACIFIC ECONOMY 325 can facilitate this process as well as improve understandings between New Zealand world have more diversified trading partners now than three decades ago. This and its Asian trading partners. We recognise that there exist some profound differen- engagement with a variety of markets also brings about greater connectedness of pop- ces in the norms and beliefs in culture, among other things, between New Zealand ulations with different cultures and backgrounds who have lived and worked in dif- and its Asian trading partners. However, trade can facilitate to reduce that cultural ferent economic and political settings. Our finding of language leads us to suggest gap as more trade over time will allow greater integration of Asian markets as well as that diversity in languages can matter in the healthy functioning of the global trading a better cultural understanding with New Zealand. environment. In businesses involving foreign partners with different languages, the appreciation and understanding of languages can make significant differences in busi- 5. Summary and conclusion ness dealings such as accessing markets, sourcing raw materials, networking and low- ering transaction costs. Thus, policymakers should recognise the corporate value of The purpose of this paper was to investigate if cultural diversity matters for trade. the diversity in languages and the need for better recognition of language perhaps This effect was examined using data on New Zealand trades with Asia within the from something that had a minor role on economic dealings to one that impacts an standard and commonly used gravity model framework. Augmented equations of international trader's core competitiveness. New Zealand's exports to and imports from Asia were estimated using pooled cross- Our primary policy implication from our findings suggests that the appreciation country data for 2003-2012. By controlling for standard gravity variables, we empiric- and understanding of cultural diversity that exists among the trading partners can ally examined the effect of four measures of Asian culture: the number of religions, facilitate more business dealings and greater economic prosperity. the number of ethnic groups, the number of languages spoken and legal origins; on On a final note, we suggest further research on culture trade nexus. It is our New Zealand's trade. The findings reveal that Asia's diversity in religion and lan- appreciation from this study that culture could also have a two-way interaction with guages are positively correlated with New Zealand's trade. Our results also show the the trade. Our study focussed in one-way interaction with trade as the dependent expected effects of standard gravity variables. variable. It would be useful to examine how developments in trade, as well as the The findings lead to the conclusion that trading partner cultural diversity does general political economy, influences culture although cultural effects on individual matter for international trade and it can exert a positive influence. While the trade characteristics such as work ethics and social networks and thereby influences on for- iterature has primarily focussed on analysing economic and financial impacts on eignatrade would be useful to investigate. Our measure includes broad indicators of trade, our findings add an element to trade research by identifying cultural signifi- cultural influences. Future studies adopting more disaggregated measures of cultural cance, a variable that has received little attention in mainstream trade analysis. The variables such as measures of religiosity (attendance to regular services and beliefs extent to which culture affects trade is a complex relationship as the underlying ele- and types of religion), the role of the family in trade-related firms and the effect of ments that determine culture varies from country to country and the norms and trust in trade, may add more value and provide greater insights and understanding of beliefs that determine culture can change. Our findings add a new dimension to the culture trade relationships. It would be useful to incorporate some of the measures of trade literature as it confirms that culture can impact trade and so does become an culture from the World Values Surveys which offers a good source of disaggregate integral component of the trade. It can mean that countries sharing common cultural data on changes in culture over time. attributes can trade more as a shared culture may give advantages in improved com- munication, sharing of ideas and products and fosters more trust and confidence in Acknowledgements market-related transactions. Given the dynamism in the world economy and the aggressive pace with which We are grateful to an anonymous referee for providing constructive and insightful comments on an earlier version of this paper. several countries around the globe are attempting to integrate into the global trading environment, trade integration and outward-oriented trade strategies can benefit hrough greater understanding of the trading partner's cultural capital. Cultural influ- Disclosure statement ences can be integral in influencing the level of trade. Our findings of the positive No potential conflict of interest was reported by the authors. and significant effect of religion on trade suggest that religion can affect cross border wealth accumulation and contribute to economic success. The various attributes that References religion and religion shaped lifestyles incorporates such as a good work ethic, honesty n commercial and business dealings, establishing trust and ethical behaviours Anderson, J. E. 1979. "A Theoretical Foundation for the Gravity Equation." American towards trading partners matter when pursuing the beneficial economic outcomes Economic Review 69 (1): 106-116. http://www.jstor.org/stable/1802501. that trading partners aspire to achieve. Anderson, J., and E. van Wincoop. 2004. "Trade Costs." Journal of Economic Perspectives 52: 691-751. doi:10.1257/0022051042177649. Our findings also reveal the importance of diversity in languages in international Anderson, K., J. Cockburn, and W. Martin. 2010. 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