Cultural proximity and interregional industrial linkages: knowledge diffusion or transaction costs?

This paper explores the impact of cultural proximity on interregional industrial linkages using evidence from China. The results show that cultural distance hinders horizontal industrial linkages between regions, but does not limit the formation of vertical industrial linkages. Cultural proximity affects interregional industrial cooperation strategies primarily through knowledge diffusion rather than transaction costs. Cultural proximity favours the formation of transregional social networks and the cognition of localised tacit knowledge. Consequently, regions that are culturally similar to one another have a comparative information advantage in forming horizontal industrial linkages.