Does Cultural Distance Matter in China’s Trade Disputes?

Abstract

Purpose: The purpose of this study is to examine the role of cultural distance in China's trade dispute participation with trading countries. China's increased engagement in WTO trade dispute settlement with culturally dissimilar trade partners has drawn worldwide attention and has a substantial impact on global trade. Methodology: Using panel probit model, and a comprehensive hand-collected dataset consisting of WTO trade disputes data, Hofstede cultural dimensions, other trade and macroeconomic data between China and its 110 trading partners from 2001 to 2019, empirical analysis have been conducted. To check robustness of the main results also used alternative models and culture data. Findings: The findings indicate that China’s cultural distance with trading partners increase their trade disputes probability. Moreover, the empirical results also evidenced that China can be involved in trade disputes with culturally distinct high- and middle-income trade partners. Countries under Belt and Road Initiative program and having FTA with China are less likely to be involved in trade disputes. Practical Implications: This study provides a useful reference to trading countries about the cultural distinctness of China and its role in disputes activities that should be considered carefully. The policy makers should consider the cultural distinctiveness of China while conducting trade related activities. Originality: The key contribution of this paper is to provide a connection between China's trade disputes and cultural distance, and also provide empirical evidence that cultural distance is significant determinant of China’s trade disputes with trading partners. Limitations: This study focuses on China's trade conflicts with its trading partners. For further research, other cultural distance metrics and cultural data sources can be investigated.