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Developing a multidimensional instrument to measure psychic distance stimuli

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Abstract

This paper develops and tests a range of potential psychic distance stimuli including differences in culture, language, religion, education, and political systems. Using trade flows among a set of 38 nations as the dependent variable, it is shown that, whereas the majority of the proposed indicators prove to be statistically significant predictors of trade flows, the most common psychic distance surrogate – a composite measure of Hofstede's cultural dimensions – is not significant.

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Notes

  1. Some researchers, such as Gomes and Ramaswamy (1999) and Lee (1998), treat these two constructs as isomorphic. However, the authors of this article favour the interpretation that views them as related but distinct constructs, with cultural distance being only one dimension of psychic distance.

  2. This approach parallels a framework proposed by Hallen and Wiedersheim-Paul (1984) and more recently by Conway and Swift (2000). It also has strong parallels with Child et al.'s (2002) schema of distance-creating and distance-bridging factors.

  3. The analyses reported in this paper were also performed using an alternative dependent variable: the trade intensity index (Srivastava and Green, 1986). These results are available in a working paper from the primary author. Although some of the specific results differ between the two approaches, the same overall conclusions are quite similar. The most relevant difference is that Hofstede's composite index proved to be a significant predictor when the trade intensity index was used. However, Hofstede's index still only represented <25% of the variance explained by the complete set of psychic distance stimuli.

  4. The means of some of the education, industrial development, and democracy difference scores, as reported in Table 2, differ from zero because of missing data; however, these deviations are small and statistically non-significant.

  5. The omitted dummy variables were for Ethiopia, Finland, Italy, and Sierra Leone as exporting nations, and India and Tanzania as importing nations. These variables were identified by their high variance proportion loadings in the multicollinearity diagnostics. The multicollinearity predominantly concerned the baseline gravity model, and not the main variables under examination.

  6. These comments exclude models, such as Regression 3, where collinearity has already been identified as a problem. Regression results confirming the significance of the Ind DevF (abs), DemF (abs) and Colony variables in the confirmation sample are not reported here, but are available on request.

  7. See note 3.

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Acknowledgements

We thank JIBS Departmental Editor Professor J Myles Shaver and the two anonymous JIBS reviewers for their comments, insights, and suggestions.

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Correspondence to Douglas Dow.

Additional information

Accepted by J Myles Shaver, Departmental Editor, 20 April 2006. This paper has been with the authors for two revisions.

Appendices

Appendix A. Coding

Languages

A major language for a given country is defined as any language that can be spoken by more than 20% of the population (i.e., widely used second languages qualify), or a language that holds a special official status within the country (e.g., English in India and several African nations). (For Nigeria and Zambia no single language exceeded the 20% threshold. For these countries, languages above 10% were deemed major.) For the countries used in our analyses, 34 languages qualified as a major language for at least one of the 38 countries. These languages have been grouped into a hierarchy of families, branches, first level sub-branches and second level sub-branches based on Grimes and Grimes’ (1996) more substantial classification of 6809 languages. An abridged version of the Grimes’ language classification is provided in Appendix B

Distance between major languages (L1)

The distance between the two closest major languages for each pair of countries is based on that classification system and is coded as follows:

5:

Different families

4:

Same family but different branches

3:

Same branch but different at the first sub-branch level

2:

Same sub-branch at the first level but different at the second level

1:

Same language

Incidence of one country's major language(s) in other countries (L2 and L3)

The second and third language indicators measure the proportion of the population in one country who are able to speak the major languages of another country. L2 concerns the incidence of country i's major language(s) in country j, and L3 concerns the incidence of country j's major language(s) in country i. The indicators are coded as follows:

5:

Less than 1%

4:

Greater than or equal to 1% but less than 5%

3:

Greater than or equal to 5% but less than 50%

2:

Greater than or equal to 50% but less than 90%

1:

Greater than or equal to 90%

Languages within the same lowest level sub-branch of language families are counted as the same language for this item (e.g., variations of German such as High German, Bavarian, and Schwyzerdutsch are grouped together). Where a country has more than one major language, a weighted average is calculated.

Religions

A major religion is defined as any religion to which more than 20% of the population claim an affiliation. Within a religion that is deemed ‘major’, only the divisions that represent at least one quarter of that religion's adherents are deemed relevant for this analysis. For example, Sunni Muslims must represent at least 25% of a county's Muslims to be considered a ‘major’ group. Similarly, only denominations and sects that represent at least one quarter of that religion's division are considered ‘major’. For example, Baptists must represent at least 25% of a country's Protestants to be considered in the analyses. If no divisions or denominations/sects reach that threshold, the largest division and denomination/sect will be used. For the countries used in our analyses, 8 religions, 9 corresponding divisions, and 12 denominations/sects qualified as ‘major’ for at least one of the 38 countries. These religions have been grouped into a hierarchy of families, religions, divisions of religions and denominations/sects based on a range of sources (Barrett, 1982; Whaling, 1987; Harris et al., 1992; O’Brien and Palmer, 1993). The classification of religions is provided in Appendix B.

Distance between major religions (R1)

The distance between the two closest major religions for each pair of countries is based on that classification system and is coded as follows:

5:

Different families of religion

4:

Same family but different religions

3:

Same religion but different division

2:

Same division but different denomination or sect

1:

Same denomination or sect

Incidence of one country's major religion(s) in other countries (R2 and R3)

The second and third religion indicators measure the proportion of the population in one country who belong to the same religion as a significant proportion of another country. R2 concerns the incidence of country i's major religion(s) in country j, and R3 concerns the incidence of country j's major religion(s) in country i. The indicators are coded as follows:

5:

Less than 1%

4:

Greater than or equal to 1% but less than 5%

3:

Greater than or equal to 5% but less than 50%

2:

Greater than or equal to 50% but less than 90%

1:

Greater than or equal to 90%

Where a country has more than one major religion, a weighted average is calculated.

Appendix B. Classification schemes

Languages

Table A1

Table 9 Table a1

Religions

Table A2

Table 10 Table a2

Appendix C. Formulae for psychic distance stimuli

Language

LangF is the single-factor solution, using principal component analysis, for L1, L2, and L3.

  • L1 is the score for the distance between the major languages, as per Appendices A and B

  • L2 is the score for the incidence of country i's major language in country j, as per Appendices A and B

  • L3 is the score for the incidence of country j's major language in country i, as per Appendices A and B

Religion

ReligF is the single-factor solution, using principal component analysis, for R1, R2, and R3.

  • R1 is the score for the distance between the major religions, as per Appendices A and B

  • R2 is the score for the incidence of country i's major religion in country j, as per Appendices A and B

  • R3 is the score for the incidence of country j's major religion in country i, as per Appendices A and B

Education

EduF (abs)=absolute value of EduF.

  • EduF is the single-factor solution, using principal component analysis, for E1ij, E2ij and E3ij.

where E1i=100 minus percentage of illiterate adults (15+, male and female) for the exporting country (i) and E1j=100 minus percentage of illiterate adults (15+, male and female) for the importing country (j).

where E2i and E2j are the number of students in second-level education/estimated population under the age of 15 for the exporting country (i) and the importing country (j) respectively.

where E3i and E3j are the number of students in third-level education/estimated population under the age of 15 for the exporting country (i) and the importing country (j) respectively.

Industrial development

Ind DevF (abs)=absolute value of Ind DevF.

  • Ind DevF is the single-factor solution, using principal component analysis, for I1ij, I2ij, I3ij, I4ij, I6ij, I7ij, I8ij, I9ij and I10ij.

where I1i and I1j are the GDP per capita ($US) for the exporting country (i) and the importing country (j) respectively.

where I2i and I2j are the energy consumption per capita (kg of coal equivalent) for the exporting country (i) and the importing country (j) respectively.

where I3i and I3j are passenger cars per 1000 people for the exporting country (i) and the importing country (j) respectively.

where I4i and I4j=100−percentage of labour force in agriculture for the exporting country (i) and the importing country (j) respectively.

where I5i and I5j are manufacturing as a percentage of GDP for the exporting country (i) and the importing country (j) respectively.

where I6i and I6j are the percentages of population living in urban areas for the exporting country (i) and the importing country (j), respectively.

where I7i and I7j are daily newspaper circulation per 1000 people for the exporting country (i) and the importing country (j) respectively.

where I8i and I8j are radios per 1000 people for the exporting country (i) and the importing country (j) respectively.

where I9i and I9j are telephones per 1000 people for the exporting country (i) and the importing country (j) respectively.

where I10i and I10j are televisions per 1000 people for the exporting country (i) and the importing country (j), respectively.

Democracy

DemF (abs)=absolute value of DemF.

  • DemF is the single-factor solution, using principal component analysis, for D1ij, D2ij, D3ij and D4ij.

where D1i and D1j are Henisz's (2000) POLCON measure (0–1, average score for 1990 to 1994) for the exporting country (i) and the importing country (j), respectively.

where D2i and D2j are Bollen's Polity IV – Polity measure (−10 to +10 scale, average score for 1993 to 1998) for the exporting country (i) and the importing country (j), respectively.

where D3i and D3j are the Freedom House political rights scale (1–7; reverse-coded, average score for 1993–1998) for the exporting country (i) and the importing country (j) respectively.

where D4i and D4j are the Freedom House civil liberties scale (1–7; reverse-coded, average score for 1993 to 1998) for the exporting country (i) and the importing country (j) respectively.

Socialism

where Social i and Social j are the average of Beck et al.'s (2001) Right–Centre–Left scale for the chief executive's political party and the largest political party (0–1, average score for 1993–1998) for the exporting country (i) and the importing country (j), respectively.

Hofstede's dimensions of culture

where PDI i and PDI j are Hofstede's power distance score for the exporting country (i) and the importing country (j) respectively.

where UAI i and UAI j are Hofstede's uncertainty avoidance scores for the exporting country (i) and the importing country (j) respectively.

where IDV i and IDV j are Hofstede's individuality scores for the exporting country (i) and the importing country (j) respectively.

where MAS i and MAS j are Hofstede's masculinity scores for the exporting country (i) and the importing country (j) respectively.

where LTO i and LTO j are Hofstede's long term orientation scores for the exporting country (i) and the importing country (j) respectively.

where VarPDI is the variance of Hofstede's power distance scale, PDI i ; VarUAI is the variance of Hofstede's UAI scale, UAI i ; VarIDV is the variance of Hofstede's individuality scale, IDV i ; and VarMAS is the variance of Hofstede's masculinity scale, MAS i .

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Dow, D., Karunaratna, A. Developing a multidimensional instrument to measure psychic distance stimuli. J Int Bus Stud 37, 578–602 (2006). https://doi.org/10.1057/palgrave.jibs.8400221

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