chapter  9
25 Pages

International relations and coordination

Previous chapters discuss culture as an explanatory factor for differences between countries. A common history and intergenerational transmission of values lead to a configuration of values and attitudes which in their turn gave rise to a particular way of organizing an economy. Within a country, this common culture and institutional framework ease coordination of activities between members. For cross-border transactions, however, the resulting differences between nations and regions with respect to cultures and institutions are expected to have a negative impact. Unfamiliarity with the working of formal institutions and unease with informal procedures (culture) will give rise to an inward looking attitude and thus hamper transactions across borders. Actual transaction costs (defined in a broad sense) are higher than suggested by physical costs and tariffs.