Cultural proximity and global value chains

This paper investigates the effects of cultural proximity on countries’ participation in global value chains (GVCs) using a large country-pair dataset with 60,910 observations from 1996 to 2018. GVC participation is defined as the value-added embedded in exports, looking both backward and forward from a reference nation. Trade in cultural goods is used as a proxy for time-varying and asymmetric dimensions of cultural proximity. After extensive robustness checks, our main findings reveal that cultural proximity drives up both backward and forward participation. The impacts of cultural proximity are transmitted through the following channels: sourcing cost reductions and local content requirements. These effects become stronger for geographically diverse country pairs and hold for an alternative measure of cultural goods classification and when controlling the endogeneity problem.