Drawbacks of the model and suggestions for future research

II. Analytical part

9. Drawbacks of the model and suggestions for future research

In this chapter, there are described three main issues that were identified during the empirical analysis. In addition, I suggest how these issues can be improved in future research and I state some additional possibilities for the development of further studies.

The first issue that resulted from the empirical analysis is the cross-sectional character of the cultural dimensions. In my point of view, the increasing globalization and worldwide cultural integration caused that before a very stable national culture is now dynamically changing. For that reason, the available cultural description provided through Hofstede´s six-dimensional model may not reflect the exact reality while considering recent years. The most suitable option would be to re-run the surveys to investigate possible cultural changes among countries. If significant changes would be observable, the measurements of cultural characteristics should be repeated regularly. A proven change of Hofstede´s cultural dimensions would also mean a possibility for methodological improvement. The macroeconomic and cultural indicators, both would have a panel data character and the estimations would not be biased by one-year fluctuations. Moreover, the estimators like the Fixed effect model, the First differences, or other estimators suitable for panel data could be used. The use of these estimators would be beneficial for the analysis because it would allow to better deal with the endogeneity issue.

The second issue is exactly related to the mentioned endogeneity problem. Endogeneity is one of the most often problems in the econometric analysis related to cultural indicators.

Based on the previously run researches that aimed to investigate the impact of trade openness on the national culture, I expected that the model may suffer from the endogeneity issue caused by simultaneity bias. To observe whether the model really suffers from simultaneity bias, I decided to use the instrumental variables for culture, and

after that, test the presence of endogeneity. Unfortunately, I was not able to find six IVs, one for each of the cultural dimensions. Nevertheless, the use of three IVs for three cultural dimensions should be enough to discover whether the model deals with simultaneity bias. In the end, the realized Hausman tests have not proved the endogeneity issue in either of the regression analyses. On the other hand, the empirical results showed that there are external factors that were not considered in the model but seem to affect trade openness. Specifically, it was the trust and the country´s participation in international trade organizations (GATT/WTO). This indicates that even the model does not suffer from the simultaneity bias, there is probably an issue with the omitted variable bias. The endogeneity caused by the omitted variable bias would not have to be revealed because the run Hausman test measured the significance of the difference between the OLS and 2SLS estimation formed to deal with simultaneity bias. The most suitable way how to deal with this would be by the incorporation of found omitted variables and by further estimation through the Fixed effect model or First differences. This would eliminate the impact of all invariable cross-country characteristics that would be omitted, however, it would be possible just with the time variable cultural effect.

The last problematic part of the empirical analysis was the selection of endogenous variable. At first, the trade openness index measured through the volume of trade as a percentage of GDP seemed to be a suitable indicator of a country´s openness.

Nevertheless, the analysis showed that in some cases the estimated effect of particular exogenous variables was influencing the trade openness index mainly through its effect on the GDP. For that reason, some variables had an opposite effect on trade openness as was expected. In further research, the empirical analysis could be improved by the selection of other, more suitably constructed, trade openness measures.

The empirical analysis, however, has not pointed out only the issues but also the possibilities for further research. The first aspect for development is related to the appearance of omitted exogenous factors that significantly affect trade openness. The regression analysis showed that while studying the reduced OECD sample, there are external factors that caused the inverse effect of individualism vs collectivism on trade openness. The theoretical deduction indicated that the long-term participation in international trade organizations strengthens the importance of mutual trust between involved parties and changes the interpretation of individualistic searching for more

profitable opportunities outside such a union. This suggests that further research could be oriented to the identification of cross-country characteristics that interact with the cultural dimensions and bias their effect on trade openness. The relevance of such a study is moreover supported by the fact that the diverse results of studies examining the cultural impact on trade openness and international trade differ mainly in studied samples. In addition, the narrower analysis, focused on the countries in which mutual trade is in our interest, could bring more precise results and contribute to improving their trade relations.

The second aspect is related to the analysis of the EU trade openness. The results suggested that the cultural effect on a country´s trade openness is reflected more in the context of the international trade inside the European Union. For that reason, the alternation of the dependent variable to the trade openness index inside the EU would bring more interesting results. It could approximate why some members of the EU are more Eurosceptic, and consider the possibility of leaving the Union, and the other countries do not. Similarly, the analysis could be enlarged by the consideration of the interaction between the cultural and nationalistic dimensions. By examination of this additional aspect, the Bekhuis et al. (2013) research would be developed and the results could show a complex analysis of cross-country dynamics in the European Union.

Apart from the possibilities for further research resulting from the empirical analysis, the theoretical analysis brought some ideas as well. First, the analysis of the cultural impact on the level of protectionism implied on historically dominant industries. Based on Hofstede´s (2011) specification of cultural dimensions, I for example assume that the countries with short-term orientation are more liable to enlarge their cultural protectionism to country´s historically important industries and in this way degrade the benefits of free trade and international specialization. Second, the analysis of the effect of negative aspects of trade liberalization (and related globalization) on people´s perception of free trade and consequent protectionist tendencies and the rise of nationalistic parties in the coalition.

Conclusion

The main aim of this thesis was to investigate the following hypothesis: “How do the cultural dimensions affect trade openness?” Moreover, the additional aim was to observe how is the cultural impact affected by the increasing intensity of globalization through time, and by the countries´ EU membership. Specifically, these research questions were intended to be answered: “Does the impact of cultural dimensions on the trade openness differ in time?” and “Do cultural dimensions affect trade openness of European Union members differently?”. Based on the acquired results, it can be concluded that the main goals of this thesis were reached. The empirical analysis has shown that the cultural dimensions have a significant effect on the trade openness of studied countries. Moreover, it was proved that the impact of cultural dimensions is increasing through time which indicates the stimulating impact of increasing globalization on cultural effect. This observation stresses the current relevance and importance of cultural consideration in economic research oriented at international trade and trade openness. In addition, the empirical outcome confirmed that the cultural impact is distinct among the EU member countries. Nevertheless, contrary to what was expected, the EU membership significantly weakens the cultural impact on trade openness. It means that even though the EU countries are characterized by a higher level of globalization, the dominant view best practice set by European Union inhibits the enhancing effect of globalization and on top of that, generally limits the cultural impact on trade openness.

More specifically, the regression analysis conducted on 36 OECD countries in the period 2010-2019 indicated the significance of one cultural dimension. This significant cultural indicator was the long-term vs short-term orientation. Its 1% increase leads to a 0.57% rise in the country´s trade openness. The positive effect of this dimension is in line with the findings of Kristjánsdóttir et al. (2017). Moreover, this effect was expected since the long-term oriented countries can easily adapt to new circumstances, they are open to changing their traditions, and they search for opportunities to learn because they care mainly about their future. The rest of the cultural dimensions have not had a significant effect, nevertheless, the analysis uncovered the direction of their impact on trade openness. In the context of the studied sample, all cultural dimensions except for uncertainty avoidance had a positive effect on trade openness.

The second regression analysis run on a reduced OECD sample in periods 1980-1989 and 2010-2019 showed that the cultural impact strengthens in time. In the period 1980-1989, there was just one cultural dimension that resulted to have a significant effect on trade openness. Equally, as in the previous analysis, the dimension of long-term vs short-term orientation had a positive significant effect on trade openness. Its 1% increase causes a rise of trade openness by 0.53%. An interesting application sourcing from this finding is related to distinct trade openness and economic development in Africa and Asia. In the analysis of the impact of import substitution industrialization policy it was shown that the Asian countries as Hong Kong or Indonesia were in the period 1976-1985 very open and achieved great economic growth. On the other hand, African countries as Nigeria applied strong protectionism and their GDP growth was mainly negative. The cultural difference between these countries consists exactly in the long-term orientation of Hong Kong (61) and Indonesia (62) and the short-term orientation of Nigeria (13). This indicates that the long-term vs short-term orientation may be one of the significant factors that determined the distinct evolution of these countries. Whereas the results of the analysis of reduced OECD sample in the period 2010-2019 preserved the significance of long-term vs short-term orientation, there were another two dimensions that had a significant effect as well.

These dimensions were uncertainty avoidance and power distance, which is in line with the results of De Jong et al (2006). The 1% increase in the country´s uncertainty avoidance causes a 0.795% decrease in trade openness. On the other hand, a 1% increase in power distance leads to 0.43% rise in trade openness. The results showed that the effect of these dimensions, and the remaining dimensions as well, is much stronger than in the period 1980-1989. This fact, along with the increased quantity of significant cultural factors, indicates that globalization intensifies the impact of national culture on trade openness.

The third regression analysis conducted on the EU sample in the period 2010-2019 showed the significance of two cultural dimensions, the individualism vs collectivism and the indulgence vs restraint dimension. The positive effect of the dimension of individualism vs collectivism is in line with the findings of De Jong et al (2006). Its 1%

increase enhances trade openness by 0.377%. In the case of the indulgence vs restraint dimension, it was the first time when its effect on trade openness was tested. Nevertheless, based on Hofstede´s (2011) description of this dimension, its positive effect was expected.

Specifically, it was observed that its 1% increase induces a 0.305% rise in trade openness.

However, the effect of these cultural dimensions, and of the remaining as well, is very small compared to previous results. This suggests that despite the intensive globalization in the EU, the cultural effect is quite restricted. In my opinion and based on De Jong et al (2006), this is caused by common routing set by European Union. The uniform trade strategy, oriented on countries outside the Union, limits the free decision-making of EU members. That is also the reason, why the significant cultural dimensions are so different compared to previous results because they affect mainly the international trade inside the EU, where the member states have much more liberty in their acting.

Apart from the results directly obtained from the regression analysis, this thesis offers several suggestions for further research. First, the re-measurement of the cultural dimensions could lead to a more precise analysis of the cultural effect on trade openness.

It would capture the time variability of cultural characteristics that is, in my point of view, much faster than it was assumed because the intensive globalization speeds such changes.

Second, the research oriented on the cross-country characteristics that affect the cultural impact on trade openness would be beneficial because the diverse results of studies examining the cultural impact on trade openness and international trade differ mainly in the studied samples. Last, the study of the cultural effect on trade openness just inside of the EU would bring more precise results since the cultural effect on trade with countries outside the Union is limited. By such research, it would be possible to uncover whether the Euroscepticism and possibility of separation from EU are also culturally conditioned.

In conclusion, this thesis brought important insights to the studied topic. Contrary to the previous researches, the complete six-dimensional Hofstede´s model was used. This allowed the observation of the positive effect of indulgence vs restraint dimension on trade openness. Moreover, the comprehensive view on this theme led to the identification of the enhancing effect of globalization on the cultural impact. In addition, the use of selected samples adverted to the existence of specific cross-country characteristics that may affect the cultural effect on trade openness. Last, the analysis oriented on the EU countries uncovered the suppressing effect of the common set trade strategy on the cultural impact even though, it would not be expected since the EU is characterized by intensive globalization. All in all, according to my knowledge and in context of available literature, this thesis represents one step ahead in the research of cultural impact on trade openness and it strengthens its relevance in economic research.

Abbreviations

• 2SLS – Two-stage least squares method

• BLUE – Best, Linear, Unbiased Estimate

• EU – European Union

• GATT – General Agreement on Tariffs and Trade

• GDP – Gross domestic product

• IMF – International Monetary Fund

• IV – Instrumental variable

• NAFTA – North American Free Trade Agreement

• OECD – Organization for Economic Co-operation and Development

• OLS – Ordinary least squares method

• UN – United Nations

• UNESCO – United Nations Educational, Scientific and Cultural Organization

• USA – United States of America

• WTO – World Trade Organization

The list of tables

Table 1: Examples of trade restrictions on a cultural sector of audiovisuals ... 12 Table 2: Description of variables from an econometric model ... 43 Table 3: Statistical description of variables (OECD, 2010-2019) ... 46

Table 4: Statistical description of variables (OECD reduced sample, 1980-1989 vs 2010-2019) ... 47 Table 5: Statistical description of variables (EU, 2010-2019) ... 48

Table 6: The OLS regression analysis of the OECD countries between years 2010-2019 ... 54 Table 7: The Hausman test (OECD, 2010-2019) ... 56 Table 8: The OLS regression analysis of reduced OECD sample in period 1980-1989 58 Table 9: The Hausman test (reduced OECD, 1980-1989) ... 59

Table 10: The OLS regression analysis of reduced OECD sample in period 2010-2019 ... 60 Table 11: The Hausman test (reduced OECD, 2010-2019) ... 62 Table 12: The OLS regression analysis of EU member countries in period 2010-2019 64 Table 13: The Hausman test (EU, 2010-2019) ... 66

The list of figures

Figure 1: The trade protectionism and per capita GDP growth between years 1976-1985

... 5

Figure 2: Distribution of total exports of cultural goods between 2004 and 2013 (% of total exports proceeding from the 20 largest exporters of cultural goods in these years) ... 10

Figure 3: World´s evolution of de jure and de facto globalization and cultural globalization ... 15

Figure 4: The evolution of de jure and de facto globalization and cultural globalization in Europe ... 15

Figure 5: Power distance in sample countries (100 - hierarchical country, 0 – egalitarian country) ... 23

Figure 6: Uncertainty avoidance in sample countries (100–uncertainty avoiding, 0– uncertainty tolerant countries) ... 25

Figure 7: Collectivism (0) vs Individualism (100) in sample countries ... 27

Figure 8: Masculinity (100) vs Femininity (0) in sample countries ... 29

Figure 9: Long-term (100) vs Short-term (0) orientation in sample countries ... 31

Figure 10: Indulgence (100) vs Restraint (0) in sample countries ... 32

Figure 11: Evolution of cultural influence - comparison between periods 1980-1989 and 2010-2019 ... 62

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