Cultural Effects of Trade Liberalization

Abstract

We incorporate culture into a standard trade model in two distinct ways. In the ¡°cultural affinity from work¡± model, workers receive a non- pecuniary cultural benefit from work in a particular industry. In the ¡°cultural externality¡± model, consumers of a product receive utility from other consumer¡¯s consumption of a domestic good. We show that resistance to change due to cultural concerns can reduce the national benefits from trade liberalization. Complete movements to free trade will have a positive national welfare impact in the cultural affinity case whereas it may lower national welfare in the cultural externality case. We also show that a loss of cultural benefits is more likely to occur in the externality model.Cigarettes, smoking, addiction, Behavioral economics