The resurgence of cultural borders in international finance during the financial crisis: Evidence from Eurozone cross-border depositing

In this paper, we demonstrate that cultural borders in international finance resurge during financial crises. To investigate the role of cultural borders during both tranquil and crisis periods, we employ a unique data set that focuses on Eurozone cross-border depositing in a gravity-model framework. We provide evidence that cultural distance limits international financial integration. However, cultural borders lost influence during a Europhoria phase after the introduction of the Euro notes in 2002, indicating that confidence in the new currency helps to overcome cultural borders. In contrast, cultural borders have severely limiting effects during crisis periods.