Perceptions versus national-level differences: A mediating model of psychic distance

Abstract

Purpose - This chapter bridges the gap between two distinct approaches to the concept of psychic distance - measuring it in terms of people's perceptions of distance or in terms of exogenous national-level differences. The two approaches are reconciled in a "refined and integrative" definition of the concept, which is tested empirically using a mediating model.Methodology - Structural equation modeling is used on a bilateral sample of 25 countries to test whether perceptions of psychic distance mediate the relationships between national-level differences and bilateral trade and investment.Findings - By testing for alternative direct paths, the chapter confirms that for the main forms of nati..