An extensive amount of research in international trade literature focuses on geographical distance as a trade barrier and its relevance in the Gravity Model across time; many papers argue intuitively that distance matters less over time, while some suggest that distance matters just as much now as in the past. However, some papers empirically find it matters more through time, in which they describe the findings counterintuitive. While there has been an ongoing debate on the importance of geographical distance in bilateral trade over time, very little attention in the literature has specifically focused on other trade costs, namely cultural distances such as language, religion and colonial ties, which influence trade flows through time.
Therefore, this thesis addresses if cultural distances matter over time in the overall bilateral trade and the probability of countries starting to trade using a variety of empirical estimations. It is found under most estimation that language distance matters more over time in bilateral trade. On the other hand, religion distance on trade matters less over time under most specifications. Likewise, colonial ties matter less over time under some specifications, such as Poisson, although they are found to have a greater influence in bilateral trade than other cultural distances. Some possible explanations are provided for this larger than expected influence on bilateral trade as well as the growing importance of language barriers to trade over time in overall bilateral trade.
The implications of the findings in this paper point to an understanding of the importance of culture barriers, namely language distance over time in explaining trade flows as well as providing motivation for future research related to this field.