Economic and Cultural Globalisation

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Cultural Effects of Trade Liberalization
Steve Suranovic and Robert Winthrop1 2 September 2005

Abstract
We incorporate culture into a standard trade model in two distinct ways. In the “cultural affinity from work” model, workers receive a non-pecuniary cultural benefit from work in a particular industry. In the “cultural externality” model, consumers of a product receive utility from other consumer’s consumption of a domestic good. We show that resistance to change due to cultural concerns can reduce the national benefits from trade liberalization. Complete movements to free trade will have a positive national welfare impact in the cultural affinity case whereas it may lower national welfare in the cultural externality case. We also show that a loss of cultural benefits is more likely to occur in the externality model.

Keywords: Culture, trade, liberalization, externalities, non-pecuniary benefit. JEL Classification: F1, Z1, F11, F16

Notes
Steve Suranovic, Department of Economics, George Washington University, Washington, DC 20052; smsuran@gwu.edu. Robert Winthrop, Bureau of Land Management, Department of the Interior, Washington, DC 20240 and Program on Culture in Global Affairs, George Washington University; robert_winthrop@blm.gov. The views expressed are the authors', and do not represent the policies of the Department of the Interior. 2

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The authors wish to thank participants at the George Washington University Economics Department seminar; colleagues in the Program on Culture in Global Affairs in the Elliott School at GW University, and colleagues at the Society for Applied Anthropology annual meeting.

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Cultural Effects of Trade Liberalization
September 2005

Abstract
We incorporate culture into a standard trade model in two distinct ways. In the “cultural affinity from work” model, workers receive a non-pecuniary cultural benefit from work in a particular industry. In the “cultural externality” model, consumers of a product receive utility from other consumer’s consumption of a domestic good. We show that resistance to change due to cultural concerns can reduce the national benefits from trade liberalization. Complete movements to free trade will have a positive national welfare impact in the cultural affinity case whereas it may lower national welfare in the cultural externality case. We also show that a loss of cultural benefits is more likely to occur in the externality model.

Keywords: Culture, trade, liberalization, externalities, non-pecuniary benefit. JEL Classification: F1, Z1, F11, F16

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1. Introduction The reality of global cultural difference challenges the goal of creating an integrated world trading system based on common rules and norms. For some advocates of trade liberalization, as represented by the expansive, post-Uruguay Round trade agenda, global cultural diversity represents an irritating distraction on the road to a rationally organized world economy. For some opponents of globalization, the perceived threat to the global diversity of values and practices represents one of the great dangers of the policies animating the World Trade Organization (WTO). Examples arise in the controversies over animal rights (the tuna/dolphin dispute), child labor (carpet manufacturing), and environmental protection (logging practices in tropical forests). Moreover, "culture" and similar terms are invoked with increasing frequency to justify departures from liberal trade: as in Japanese rules limiting practice by foreign attorneys (Coulter 1995); in French defense of farm subsidies as a means of preserving rural social life (Gardner 1996:101); or in Saudi opposition to foreign investment in the insurance sector (Pruzin 2002). The economic analysis of trade liberalization has largely ignored formal modeling of cultural factors, despite the fact that national cultural differences form an inescapable aspect of the global economic system. Some exceptions have begun to appear....
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