Do Spanish Associations matter for Economic Exchange? A transnational Social Capital perspective Ana Lucia Abelianskya∗ a) University of G¨ottingen Department of Economics Platz der G¨ottingerSieben 3 37073 G¨ottingen, Germany email:
[email protected] Abstract This paper aims to investigate how Spanish associations, as a measure of transna- tional social capital and a true measure of people actually interacting, affect economic exchange understood as outward and inward Foreign Direct Investment (FDI) and international trade. In a world of information asymmetries and contract incomplete- ness, Spanish associations serve as a mean to diminish these barriers especially for FDI for which these barriers matter the most. This is especially due to the long-term horizon of FDI. No effect is found for trade, where transactions can be suspended in the short/medium term in case of contract violations. An augmented gravity model is employed to test this hypothesis in a cross section for 2010, and results are robust to the inclusion of different controls. JEL classification: F14, F19, F23, F29. Keywords: Transnational Social Capital, Foreign Direct Investment, Spain, Interna- tional Trade. ∗I would like to thank Carl-Johan Dalgaard, Inmaculada Mart´ınez-Zarzoso, Holger Strulik and the participants from the internal seminar of the Chair of Macroeconomics and Development from the Universiy of G¨ottingen,as well as from GLAD Workshop and the XV G¨ottinger Workshop of International Economics for valuable comments and suggestions. Special thanks to Florencia Correa for the support while collecting information across different libraries in Barcelona. 1 \Las asociaciones de inmigrantes son tan necesarias que si no existieran habr´ıaque inventarlas/ Immigrant associations are so necessary that if they would not exist, they should be invented" | Swedish Immigration Minister at a meeting of European Immigration Ministers(1980), (Fern´andezAsperilla, 2011) 1 Introduction There is a growing literature on the impact of culture on different economic outcomes.