Zingales’s work on how prejudice affects trust and commerce featured in The Economist

How a country views a trading partner has a direct effect on trade suggests research by Professor Luigi Zingales, Robert C. McCormack Professor of Entrepreneurship and Finance. Zingales and two coauthors published an article in the National Bureau of Economic Research on “Cultural Biases in Economic Exchange.” Their research also was covered in the July 21 issue of The Economist.

Looking at the EU, Zingales and his fellow researchers observed that two different countries can have differing views of the reliability of the same trading partner. Prejudice affects trust and commerce, which, they said, is evidence of cultural preconceptions. Because trading could influence trust levels, they looked at three long-term factor associated with prejudice—religion, war and genetic differences—as a way to isolate biases.

Zingales and his coauthors found a positive correlation. Trade between two countries, the researchers claimed, could see a significant increase—around 30%—if trust increased by one standard-deviation in measurement.

Because higher education levels and more information can decrease prejudice, trust and trade would likely increase, they said. The reverse is also true. Thus, the implication of their research is that national ignorance is costly. Not only can it promote trade protectionism, they stated, it also negatively affects trade.