The effects of bilateral attitudes on imports

• Author: Larry D. Qiu,Xiaohua Bao,Daming Zhu,Qing Liu
• DOI: http://doi.org/10.1111/twec.12867
• Published date: 01 February 2020
• Date: 01 February 2020

World Econ. 2020;43:371–387. wileyonlinelibrary.com/journal/twec

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371

© 2019 John Wiley & Sons Ltd

Received: 6 June 2018

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Revised: 4 April 2019

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Accepted: 10 April 2019

DOI: 10.1111/twec.12867

ORIGINAL ARTICLE

The effects of bilateral attitudes on imports

XiaohuaBao1

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QingLiu2

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Larry D.Qiu3

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DamingZhu4

1College of Business,Shanghai University of Finance and Economics, Shanghai, China

2National Academy of Development and Strategy,Renmin University of China, Beijing, China

3Department of Economics,Lingnan University, Hong Kong, China

4Shanghai Pudong Development Bank Co., Ltd., Shanghai, China

Funding information

Social Science Foundation of China, Grant/Award Number: 18ZDA069; National Natural Science Foundation of China,

Grant/Award Number: 71673177 and 71273161; Shanghai Municipal Education Commission; Renmin University of China

KEYWORDS

attitude, trade

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INTRODUCTION

People have different attitudes towards different countries, and countries make efforts to build and

maintain good images for favourable international attitudes. Does it matter how foreigners view us?

Does international attitude affect international trade? Our study investigates the effect of bilateral

attitudes on international trade with cross‐country data. Our study is based on the observation that at-

titudes vary from country to country and change over time. For example, on the basis of Pew Research

Center's Global Attitudes Projects dataset from 68 countries and regions from 2002 to 2015, we find

that 37.41% of the people from the United States in the 2007 survey chose ‘very favourable’ towards

Canada, compared with only 1.97% towards Iran. People from the United States in the survey choos-

ing ‘very favourable’ towards Japan corresponded to 16.78% in 2005 and 23.4% in 2008.

Our paper belongs to the growing literature that examines the effects of non‐economic factors

(such as culture and political relations) on bilateral economic activities and financial outcomes.

Traditional gravity models are known to focus on the effects of economic factors (e.g. GDP, tariffs,

non‐tariff barriers, distance); however, there is an emerging strand of literature realising the impor-

tance of non‐economic factors in determining economic development and exploring the non‐eco-

nomic factors' effects on international economic activities, such as international trade and FDI. For

example, Guiso, Sapienza, and Zingales (2009) check the impact of trust and they found that lower

bilateral trust between two European countries results in less trade, less FDI and less portfolio invest-

ment between the two countries.1 Some researchers focused on the impact of national conflicts. For

1 Fehr (2009) provides a good discussion on the definition and measurement of trust. He proposes a behaviour definition of

trust, which is closely linked to economic primitives, such as preferences and beliefs. Such a definition would allow us to see

more clearly the mechanism through which trust affects economic activities.

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BAO et Al.

example, Blomberg and Hess (2006) investigate many types of violence, such as war, terrorism, revo-

lutions and interethnic fighting from 177 countries from 1968 to 1999.2 Their analysis shows that the

presence of all types of violence is equivalent to 30% tariff with regard to the effects on bilateral trade.

Glick and Taylor (2010) focus on wars using a sample covering numerous countries over 1870–1997.

They detected large, persistent and negative effects of war on bilateral trade. Other studies have more

detailed analyses but use smaller sample sets of countries. For example, Che, Julan, Yi, and Tao

(2015) confirm Glick and Taylor's (2010) findings by showing that the Japanese invasion of China

during 1937–1945 reduced contemporary trade and investment between China and Japan.3

Different from the above‐mentioned papers, we investigate another non‐economic factor: bilateral

attitudes. A closely related paper is Michaels and Zhi (2010), which focus on public attitudes. Their

paper examines whether changes in public attitudes between two countries affect their bilateral trade.

They use the decline in the fraction of US Gallup Poll respondents who viewed France favourably

from 83% in February 2002 to 35% in March 2003 and the decline of US favourability viewed by

France from 63% to 43% from the Pew Research Center's Global Attitudes Projects during the same

period to measure changes in public attitudes. Their analysis shows that worsening attitudes reduce

bilateral trade by approximately eight to nine percentage points. They also show that the reduction in

trade is largely driven by the change in managers' own attitudes (which induces firms to switch the

choice of input imports to other countries).

A distinguishing feature of our study from Michaels and Zhi (2010) is that we focus on cross‐coun-

try evidence; that is, our paper deals with attitudes of numerous countries (rather than just two spe-

cific countries) to examine their effects on imports. Specifically, by adding attitude as an explanatory

variable to the traditional gravity model of international trade, we find that a more positive attitude

of the reporting country towards a responding country increases imports of the former country from

the latter, whereas a more negative attitude reduces bilateral trade. In particular, we find that a one

SD increase in the positive attitude of people in country A towards country B increases country A's

imports from country B by 9.09 percentage points, while one SD increase in the negative attitude of

people in country A towards country B reduces country A's imports from country B by 4.83 percent-

age points. This result is robust to endogeneity check with different instrument variables, to different

measures of attitudes and to different estimation methods. However, heterogeneity is observed across

different types of goods and countries. The result holds for trade in intermediate and consumer goods,

but the effects are not statistically significant for capital goods. The effects are statistically significant

for trade between different country groups, except for high‐income countries' imports from non‐high‐

income countries.

Using worldwide data to examine the effects of attitudes on trade has at least two benefits.4 First,

conclusions based on two countries or a small set of countries may not be general; thus, our study is

able to deliver more generalised cross‐country evidence on the effects of attitudes on economic ex-

change. Second, a large set of countries enables us to explore differential effects. For example, we

2 Martin et al. (2008) make an important contribution to a different but related literature on the effects of trade on war. They

show that bilateral trade reduces bilateral wars, but multilateral trade increases bilateral wars because of the gains from trade

and asymmetric information.

3 Fuchs and Klann (2013) use Dalai Lama's visit to a country to measure conflicts between China and that country. They show

that the visits reduce China's import from those countries.

4 Michaels and Zhi (2010) also use attitude data from the Pew Research Center's Global Attitudes Projects to construct a

dummy variable to capture the deterioration of relations between the US and France, which affects attitudes. Pandya and

Venkatesan (2016) use the 2003 US–France dispute over the Iraq War to examine consumers’ responses to international

conflict.