Cultural barriers, institutional distance, and spatial spillovers: Evidence from regional industrial evolution in China

Abstract This study empirically explores the formation of interregional cultural barriers that affect spatial spillovers within the framework of institutional distance based on evidence of regional industrial evolution in China. With dialect as the proxy of culture, this study finds that, first, regional cultural differences will hinder the spatial spillovers of industrial evolution, but the formation of cultural barriers is not only related to culture itself but also closely related to the formal institutional distance between regions. Second, when there is inter‐regional formal institutional distance, formal institutions are insufficient to shape the economic order, and cultural factors with the attributes of informal institutions will become an alternative arrangement to regulate inter‐regional interaction through trust and information mechanisms. The construction of mutual trust based on cultural affinity can reduce the uncertainty of inter‐regional interactions. However, this trust mechanism is regulated by formal institutions and will be significantly weakened with the reduction in formal institutional distance. In addition, information diffusion is easier in regions of cultural homogeneity. However, this information mechanism is often confined to a small social network, and it tends to be weaker as economic society becomes increasingly open and complex.