Trade openness and cultural creative destruction
| Date | 20 April 2012 |
| Published date | 20 April 2012 |
| DOI | https://doi.org/10.1108/20452101211208344 |
| Pages | 22-49 |
| Author | Christopher J. Coyne,Claudia R. Williamson |
| Subject Matter | Strategy |
Trade openness and cultural
creative destruction
Christopher J. Coyne
Department of Economics, George Mason University, Fairfax,
Virginia, USA, and
Claudia R. Williamson
Development Research Institute, New York University, New York,
New York, USA
Abstract
Purpose – This paper seeks to analyze empirically the net effect of trade openness on “economic
culture”, measured by indicators of trust, respect, level of self-determination, and obedience. Openness
to international trade means that societies are more likely to be exposed to alternative attitudes,
beliefs, ideas, and values leading to a Schumpeterian process of creative destruction whereby culture is
destroyed on some margins and enhanced on others.
Design/methodology/approach – Using data on tradeopenness from Quinn and Sachs and Warner,
the paper empiricallyevaluates the impact of trade opennesson economic culture. The paper’s measure
of cultureis taken from Tabelliniand Williamson and Kerekes,where data from theWorld ValuesSurvey
is aggregated to create a culture variable. The paper isolatesthe impact of trade policies on economic
culture through a variety of empirical strategies including both panel and cross sectional analysis.
Findings – The central finding of the study is that a society’s openness to international trade
generates, on net, positive effects on economic culture. The more open a country is to trade, the more
likely it is to possess culture conducive to economic interaction and entrepreneurship.
Originality/value – This paper contributes to the existing literature by studying the impact of trade
openness on culture. While previous studies have asked “Does culture affect economic outcomes?”, this
paper explores the answer to the related question, “How does op enness to trade affect culture?”.
Keywords Development, Economic growth, Entrepreneurial action, Globalization,
International trade
Paper type Research pap er
1. Introduction
There is widespread consensus among economists regarding the net economic benefits
of trade openness. As Dollar and Kraay (2004) note, “Openness to inter national trade
accelerates development: this is one of the most widely held beliefs in the economics
profession, one of the few things on which Nobel prize winners on both the left and the
right agree” (p. F22). Further, there are numerous empirical cross-country studies
exploring how openness imp acts a variety of economic and political outcomes (Rodrik,
1998; Durham, 1999; Wei, 2000; Versakelis, 2001; Schneider and Wagner, 2001;
Wacziarg, 2001; Yanikkaya, 2003). Missing from the existing literature is an analysis of
the connection between international trade openness and culture. One reason for this
gap is the fact that culture “is so broad and the channels through which it can enter
economic discourse so ubiquitous (and vague) that it is difficult to design testable,
refutable hypotheses” (Guiso et al., 2006, p. 23). However, with improved data regarding
values and beliefs, economists have paid increasing attention to the link between
culture and economic phenomena (see, for instance, Tabellini, 2008a, b, 2010).
This paper contributes to the existing literatu re by studying the impact of trade
openness on culture. While previous studies have asked “does culture affect economic
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/2045-2101.htm
Journal of Entrepreneurship and
Public Policy
Vol. 1 No. 1, 2012
pp. 22-49
rEmeraldGroup PublishingLimited
2045-2101
DOI 10.1108/20452101211208344
22
JEPP
1,1
outcomes?” (see Guiso et al., 2006), we explore the answer to the related question, “how
does openness to trade affect culture?” In order to overcome the broadness of the
concept of culture, we concentrate on several cultural traits – trust, perceived level of
self-determination, respect for others, and obedience – which are relevant for
entrepreneurship. One can think of this subset of traits as “economic culture,” defined
by Porter (2000, p. 14) as “the beliefs, attitudes, and values that bear on economic
activities of individuals, organizations, and other institutions.” Narrowing the conce pt
of culture in this manner allows us to explore how trade openness impacts sp ecific
cultural characteristics which are likely to affect economic outcomes through
entrepreneurial activity.
Using data on trade openness from Quinn (1997) and Sac hs and Warner (1995), we
empirically evaluate the impact of trade openness on economic culture. Our measure of
culture is taken from Tabellini (2010) and Williamson and Kerekes (2010) where data
from the World Values Survey (WVS) is aggregated to create a culture variable. We
attempt to isolate the impact of trade policies on economic culture through a variety of
empirical strategies including both panel and cross-sectional analysis. The panel data
covers the time from 1950 to 2004, using five-year averages creating 11 time periods[1].
The cross-sectional analysis covers the same time period but averages the data across
all years in order to include additional control variables.
In analyzing the effect of trade openness on economic culture, our study provides
insight into the net effect of the process of Schumpeterian creative destruction as it
applies to economic culture. The process of “cultural creative destruction” indicates
that openness to tr ade will destroy existing economic culture on some margins while
enhancing it on other margins. A key question is the direction of the net effect of trade
openness. Our evaluation of the data suggests that trade openness has a net positive,
significant and robust impact on economic culture. The more open a country is to the
trade, the more likely it is to possess culture supporting economic interaction and
entrepreneurship. We are cognizant of the likelihood of reverse causality and
endogeneity among our results and therefore interpret ou r findings cautiously.
However, our findings are robust to the inclusion of a variety of control variables,
different model specifications, including instrumental variable analysis, and
alternative trade and culture measures, lending fu rther credibility to our findings.
Our focus on trade openness and the cultural values associated with economic
interaction and entrepreneurship contributes to several strands of existing literature,
the first of which explores th e link between culture , entrepreneurship, and
development (Lavoie and Chamlee-Wright, 2000; Harper, 2003). A related strand of
literature draws on psychology to study how a society’s culture, in the form of values,
beliefs, and norms influences entrepreneurship through individual’s perceptions of
their “locus of control” and “self-efficacy” (see Lane, 1991; Harper, 2003). A third strand
of literature highlights the importance of culture on the extent of the market in the form
of social capital and trust (see Knack and Keefer, 1997; Woolcock, 1998; Francois and
Zabojnik, 2005; Chan, 2007). Finally, we contribute to the literature focussing on the
role of institutions (North, 1961, 1990, 2005; Davis and North, 1971; Keefer and Knack,
1997; Licht et al., 2007; Shirley, 2008) which recognizes the importance of culture in the
process of economic change and development. As North (2005) emphasizes, culture
determines the perfo rmance of a society over time by framing the perce ptions of
individuals regarding opportunities and alter natives.
We proceed as follows. Section 2 explores the theoretical connection betwe en trade
openness and the process of cultural creative destruction. Section 3 disc usses how the
23
Trade openness
and destruction
To continue reading
Request your trial