Effects of Genetic Distance on International Trade

Huang Xinfei, Li Teng  and Zhai Aimei
International Business School, Sun Yat-Sen University, Guangzhou, China
Department of Economics, National University of Singapore, Singapore

Abstract:  The bilateral trade barrier should include not only the geographical distance, but also the trade cost incurred by the transnational cultural heterogeneity. This paper takes the genetic distance, the measure of the genetic divergence between ethnic groups to a recent common ancestor, as the measure of cultural heterogeneity, and explains the validity of this measure. It uses the national weighting method to calculate the genetic distances between China and 110 countries, and carries out an empirical analysis of panel data from 1996 to 2010 on the basis of the gravity model of trade. According to the results, when variables such as geographic distance are controlled, the genetic distance has a significant impediment on bilateral trade flows, and the impediment shows an increasing trend with the passage of time. There is a substitution effect between the impacts of genetic distance and geographic distance on the bilateral trade. Further analysis shows that the negative impact of the genetic distance on the trade flows between China and 24 developed countries is more significant. This paper uses the genetic distance among the main ethnic groups in the year of 1500 as instrumental variable, and the panel IV estimation solves the problem of endogenity of the variables. The empirical results are robust.

Keywords: cultural heterogeneity, genetic distance, international trade flow, gravity model of trade

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