The Resurgence of Cultural Borders during the Financial Crisis

In this study, Stefanie Kleimeier, Harald Sander, and Sylvia Heuchemer investigate the impact of cultural borders on the geography of international finance during stable and crises times. The authors employ a unique data set that focuses on Eurozone cross-border depositing during the 1999-2011 period in a gravity-model framework. They find that cultural distance limits international financial integration over and above what can be expected from economic trade and transaction costs. While the study provides evidence that cultural borders lost influence during a “Europhoria” phase after the introduction of Euro notes in 2002, the results indicate that cultural borders resurge during the 2007/08 financial crisis and severely limit financial integration.