Do cultural dimensions affect the trade openness of European Union members

The third regression analysis aims to observe whether the membership in European Union alters the effect of cultural dimension on trade openness. The investigation of cultural influence under a strong political and socio-economic union is motivated by the

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fact that strong unions may cause a feeling of fear from the loss of the member country´s sovereignty. Moreover, it was shown in chapter 2 and 3.3. that the intensity of globalization is even higher in the European Union. Both of these aspects use to lead to increasing nationalistic tendencies and a country´s protectionism. This indicates that the cultural effect on trade openness of EU countries could be affected as well. To examine this hypothesis, I run the regression analysis on the sample of 27 EU member countries in the period 2010-2019.

Table 12 summarizes the outcome of the OLS regression analysis based on the average data from the period 2010-2019 since the significance of individual variables was constant through the observed years. The regression function, similarly as in chapter 7.2., has to be altered due to the multicollinearity issue. The original regression function is also reduced by the exclusion of the human capital variable. The results presented in Table 12 are already the outcome of the estimation of the changed regression function.

Table 12: The OLS regression analysis of EU member countries in period 2010-2019

Variables Estimated

parameters Std. error P-value

Intercept -25.319902 11.282638 0.0393 *

log(pdi) 0.054926 0.147147 0.7138

log(idv) 0.376794 0.213918 0.0973 .

log(mas) 0.047180 0.099777 0.6427

log(uai) -0.005865 0.195623 0.9765

log(ltowvs) 0.210206 0.200077 0.3090

log(ivr) 0.305419 0.133203 0.0357 *

log(g.cap.form) 0.507326 0.377844 0.1981

log(work_pop) 6.624216 2.687614 0.0254 *

log(econ_size) -0.244957 0.045739 6.44e-05 ***

log(ex_rate) -0.018437 0.040815 0.6575

Multiple R-squared 0.8115

Adjusted R-squared 0.6937

Source: Own Elaboration With Use Of RStudio And Based On Respective Data.

The estimation results show that two out of six dimensions have a significant effect on trade openness. More specifically, the individualism vs collectivism dimension and

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indulgence vs restraint dimension affect the country´s openness significantly and positively. In the case of the indulgence vs restraint dimension, its significance can be confirmed on a 5% level of confidence. It means that the preference of indulgent countries for freedom is transmitted to their approach to trade as well. The trade openness in indulgent countries is significantly higher than in the restraint societies. Specifically, by increasing the indulgence tendencies in the country by 1%, the trade openness rises by 0.305%. The significance of the individualism vs collectivism dimension can be confirmed on the 10% level of confidence. Contrary to the results from 7.2., individualism vs collectivism in the European Union countries enhances trade openness. Its 1% increase provokes a 0.377% rise in the country´s openness index. This distinct impact of individualism vs collectivism dimensions in the case of the reduced OECD sample and EU sample consists in the limitation that the institutions place on the decision-making of its members. The European Union legislative restricts the decision-making of the member countries much more than the WTO does.²⁰ The common strategies and implication of unified regulations for all the European Union cause that the individualistic countries do not have the possibility to significantly change their trade strategy and, in this way, hurt the mutual trust. For that reason, just its positive effect on competitiveness improvement is manifested. Surprising is the insignificant effect of the long-term vs short-term orientation dimension. This cultural indicator was the most significant cultural explanatory variable in the case of the previous estimations but in the case of the European Union, other dimensions are much more important for trade openness. However, this difference should not be caused by the unification of observed countries under the EU.

The sample countries are primarily long-term oriented and there are just some short-term oriented states, such as Ireland or Portugal. This smaller heterogeneity may be the reason why in the study of EU trade openness the long-term vs short-term orientation does not have a significant impact. Regarding the remaining cultural dimensions, they have the expected impact on trade openness, nevertheless, their influence is the smallest among all made estimations.

20 Such united acting and common strategies were nicely shown in chapter 2. where the restrictions related to cultural protectionism were discussed. The European Union agreed on the restrictions for foreign broadcasting and each member country had to respect the minimum of European content in their radio stations and televisions. Even though the countries could choose an upper limit, they could not choose lower restrictions.

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Among the macroeconomic explanatory variables, there are two that have a significant impact on trade openness. The negative impact of economic size is considered to be significant on a 1% level of confidence and its 1% increase causes a 0.245% decrease in trade openness of a country. The second variable is the proportion of the productive population which significance is confirmed at a 5% level of confidence. The increase of the productive population ratio has a positive impact on the country´s trade openness.

More specifically, the 1% increase in labor provokes up to a 6.62% rise in the trade openness index. The remaining control variables have the expected effect. Interestingly the macroeconomic effect, contrary to the cultural effect, is for the EU sample the greatest among all the estimation outcomes. Moreover, the model specification for the EU sample is also the one that explains most of the overall variability of the trade openness index.

The adjusted R-squared is 69.37%.

Regarding the Gauss-Markov assumptions, the results have not indicated any violation of the assumptions. The Hausman test, as well as in previous regression analysis, shows that the null hypothesis cannot be rejected, so the endogeneity is not proved and the OLS estimation offers a BLUE outcome.

Table 13: The Hausman test (EU, 2010-2019)

H0: There is no endogeneity issue H1: There is endogeneity issue

P-value: 0.5381917

Source: Own Elaboration With Use Of RStudio And Based On Respective Data.

All in all, the results, however, do not suggest that the political and socio-economic union strengthens the cultural effect on trade openness. Actually, the opposite is true. The outcome of this estimation suggests that the European Union dictates the best view practice that weakens the cultural impact. The effect of a policy that is perceived as the unique best option is already described by De Jong et al. (2006) and in the case of the EU, its effect overcomes the impact of intensive globalization. As a result, there are cultural dimensions that significantly affect trade openness, but their impact is quite small.

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