Globalization and The Dynamics of Cultural Identity

This paper presents a simple model where microfounded dynamics of cultural identity are endogenous and interact with an international trade equilibrium. This process generates a strong home bias under autarky. We then show that goods market integration causes a phenomenon of cultural divergence, whereby the distributions of cultures become more dissimilar across countries and one of the cultures that existed under autarky ultimately disappears. By way of contrast, we show that social integration causes cultural convergence and can counterbalance the e¤ects of goods market integration. Classi…cation: F02, F10, Z10, Z13. Keywords: Cultural Identity, Cultural Transmission, International Trade We particularly thank Roland Benabou, Giovanni Facchini, Luigi Guiso, Elhanan Helpman, Dalia Marin, Dani Rodrick and participants at the ERWIT meeting in Venice (September 2004), PUC (Rio December 2004), Princeton University (April 2005), Toulouse University (July 2005), the SBE Meeting (Natal December 2005), the CEPR Workshop on "Trade, Industrialization and Development" in Chianti (January 2006) and the Midwest International Economics meetings (April 2006) for useful comments. We are especially grateful to the Editor, Jonathan Eaton, and two anonymous referees for extremely detailed and insightful comments and suggestions. yJacques Olivier thanks the HEC Foundation for generous …nancial support.