Genetic distance, cultural differences, and the formation of regional trade agreements

Abstract

Genetic distance between countries’ populations has been shown to proxy cross-country differences in cultures and preferences. In an unbalanced panel of 133 countries from 1970 to 2012, we find that higher genetic distance between two countries decreases their probability of having a trade agreement, even when controlling for geographic distance and other controls. The impact of cultural differences proxied by genetic distance is persistent over time and economically significant: While increasing the geographic distance between two countries by one percent decreases the probability of a regional trade agreement by 0.11 percentage points, increasing their genetic distance by one percent decreases the probability by 0.06 percentage points.