Before the concept of cultural distance was developed, the concept of distance in trade has focused on geographical distance. Differences of norms, values, and beliefs is a cultural distance that has the potential to create a trade cost then decreases trade. Variables of the World Values Survey such as trust, respect, control, and obedience are used as cultural distance indicator to analyze the cultural distance and trade relations within the APEC economic region. A total of 6,728 observations are used with the research period of 1990-2013, first of all this research uses the pooled-effect OLS estimation method. However, the results of pooled-effect OLS potentially contain endogenous, so this study uses 3SLS as an empirical strategy in overcoming endogenity. Estimation results show that cultural distance does not affect trade within APEC region, but trade within APEC economics area is proven to decrease the reluctance of trade that arise due to cultural distance.
- Trade, Culture, Gravity Model