Developing a Multidimensional Instrument to Measure Psychic Distance Stimuli

Douglas Dow, Melbourne Business School, The University of Melbourne
Amal Karunaratna, School of Commerce, The University of Adelaide

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 amongst a set of 38 nations as the dependent variable, it is shown that, while 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.