CULTURAL AND LINGUISTIC DISTANCE AS FORCES IN GRAVITY MODELS OF BILATERAL TRADE AND INVESTMENT: THE CASE OF JAPAN

Academic disciplines often benefit from borrowing and adapting good ideas in one endeavor to better understand another, seemingly different problem. So it is that the gravitational model of physics has become a workhorse in explaining the forces that compel countries to enter into economic exchanges by considering the economic mass of each economy, tempered by the distance between them. This paper considers the possibility that, at least for some countries some of the time, other factors may contribute more than physical distance to its perception of isolation or tendency to seek out partners that are “nearby” in some sense other than physical space. Two seemingly reasonable candidates are considered in some detail: cultural distance and linguistic distance. Multiple constructs are considered for each. The working hypothesis is that there may be circumstances in which results from the standard gravity model may improve by substituting alternative measure(s) of distance. Empirical support for the hypothesis is derived from consideration of trade and investment data from bilateral relations Japan has with each of 65 countries around the world. Japan is an ideal candidate because it is an island-nation, far removed geographically from most of the world’s primary markets, with deeply engrained cultural roots in a highly homogenized society, and almost uniformly speaking a language that has not been adopted by other nations. Statistical findings reject the null hypothesis that physical distance matters (at least in terms of statistically significant explanatory power) in economic relations involving Japan, and support the alternative hypothesis that cultural and/or linguistic distance (in this instance, linguistic) is a statistically significant alternative measure of distance.