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.
