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Abstract

By extending the study of international trade to include cultural factors, this paper demonstrates that culture has a direct impact on Canadian and US bilateral trade flows with the world. Various cultural factors of Canadian and US's trading partners were examined through a gravity model to determine their impact on 1990 trade flows. The gravity model explains trade between two countries in terms of the economic size of the trading partners and the distance between them. The following cultural factors were added to this base gravity model to test their explanatory power: the stock of immigrants from the trading partner in Canada, whether the trading partner has English or French as a principal language, and each of four cultural dimensions as they were described by Geert Hofstede in his study of national differences in work related values. This study has established that culture does have a significant impact on Canadian and US trade. Inirnigration, English, Hofstede's Individualism/Collectivism, and Hofstede's Uncertainty Avoidance were each found to have significant regression coefficients. Countries with immigrants in Canada trade more with Canada, and English-speaking countries trade more with both Canada and the US. Individualism / Collectivism measures how members of a society relate to one another. It appears that collectivist societies trade more with Canada and the US. Uncertainty Avoidance measures how a society and its members deal with risk and it appears that countries with lower Uncertainty Avoidance ratings (i.e. less risk averse), trade more with Canada and the US. For the business person trying to compete internationally, cultural factors have been a concern for many years. However, this study suggests a prioritization of the cultural determinants of trade. With a greater understanding of the mechanisms through which culture impacts trade, managers can be more effective in the global marketplace.