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Cultural Diversity a Barrier to Riches?

Using a theory based gravity equation, we first show that cultural dissimilarity negatively affects bilateral imports of countries. More importantly, we examine Huntington’s the Clash of Civilizations hypothesis and provide evidence that the impact of cultural heterogeneity on trade flows is far more accentuated in the post-Cold War period than during the Cold War, a result that confirms Huntington’s thesis from an economic standpoint. In the post-Cold War period, two countries that belong to different civilizations have 40% lower import flows than those of the same civilization, whereas this effect is insignificant during the Cold War. Alternatively, in the post-Cold War epoch, import flows of a country pair with different majority ethnicity are 51% lower than those that sharing the same heritages, whereas this effect is only 27% in the Cold War era.