Cross Country Growth Spillovers:Seperating the Impact of Cultural Distance from Geographical Distance

Abstract

While advances in technology have effectively reduced the distance that knowledge and innovations have to travel between countries, cultural differences between countries can still limit the ease with which innovations are transferred and adapted. Thus, countries with common cultural characteristics are more easily able to share technology and innovations. This working paper separates out the impact of cultural distance from geographical distance on growth spillovers between countries. We find that, after controlling for geographical distance, cultural distance has a significant impact on growth spillovers between countries. Therefore, even if a country is geographically located in a low-growth “neighborhood,” it can still benefit from spillovers from culturally close high-growth countries. We also find that there are larger growth spillovers between countries that have greater bilateral trust, even when one controls for the bilateral geographical distance.