Gravity, the English language and international business (original) (raw)
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European Economic Review, 2008
While language plays an important role in gravity models, there has been little attention to the channels through which a common language promotes bilateral trade. This work proposes separate series for a common language depending upon whether ease of communication facilitates trade through translation or the ability to communicate directly. The series related to direct communication is far more important in explaining bilateral trade, but the other series, based on translation, makes a distinct contribution as well. Either measure of a common language outperforms the measure in popular use, which is implicitly related to translation, and a combination of the two does far better. In addition, the paper examines the effect of two country-specific linguistic influences on trade: Literacy and linguistic diversity at home. Both of these influences promote foreign relative to domestic trade. Finally, the article studies the separate roles of English and network externalities. r 2007 Elsevier B.V. All rights reserved. JEL classification: F10; F40
International trade, foreign direct investment, and transaction costs in languages
We examine the roles of major trade languages in international trade and foreign direct investment (FDI) flows. Empirical results confirm that speaking a common language increases trade and FDI flows, yet the effect of major languages is more substantial in FDI than in international trade. In addition, we find evidence of a hierarchy in transaction costs of major languages in both trade and FDI.
2016
In an increasingly global and networked economy, companies have a wider market at their disposal but also a number of barriers they have to overcome in order to expand their business internationally. When the decision of trading with another country is made, one of the key issues companies have to deal with is language: language barriers can hinder international trade, while language similarities can boost it due to the weight of communication costs. The economics of language is an interdisciplinary field of study that aims to bring together reflections on the role of language in the economy and conversely on how the economy affects language choices. In this study we focus on the relationship between international trade and language barriers by analysing Portuguese exports of goods and find that language does play an important role in the choice of foreign trading partners although sharing Portuguese as the common language with a group of countries does not imply exporting more to t...
Economy of Language: Assessing the impact of the U.S. language deficit on American export companies.
The research reveals a sharp decline of economic importance for English. Just over a quarter of the world Gross Domestic Product (GDP) is coming from people who are capable of speaking English. The same goes for English as a trade language, a decline is visible here as well. Yet, it is still the most prominent language. English is the most important language for American trade but the increasing importance of non-English languages for the U.S. is unmistakeable. The Language Importance Index for the United States could give an insight into which official languages are of the most critical importance for the United States. 110 languages have been subjected to 19 indicators based on five different categories. The top 5 most important languages for global affairs for the U.S. are English, Spanish, Mandarin, French and Arabic. A model has been created that combines the internationalisation theory of the Uppsala model with language management to explain the correlation between language and global business. It seems that language within a firm is a given but the contrary is more likely if the firm wants a successful experience abroad.
Journal of Research in Emerging Markets
Prior studies have investigated the role of economic and noneconomic variables on international trade. A major factor, which has been studied less, is the language used in transactions and negotiations. We explore the effects of language connectedness and the Arabic language on international trade in thirteen countries in the Middle East and North Africa (MENA) region. We used a panel of bilateral data and gravity model for the countries of the region over the 2000 to 2018 period. Our analytic technique was the Poisson pseudo-maximum-likelihood (PPML) estimation method. The empirical outcomes indicate that speaking Arabic leads to an increase in export, that is, Arab nations prefer to export to the countries whose people speak their language. In addition, the language connectedness index, which depends on the extent to which the country's languages are spoken outside the country, is positively associated with the levels of exports and imports. Results further show that the GDP, ...
How does language affect the choice of foreign trading partners?
2016
UID/LIN/03213/2013In an increasingly global and networked economy, companies have a wider market at their disposal but also a number of barriers they have to overcome in order to expand their business internationally. When the decision of trading with another country is made, one of the key issues companies have to deal with is language: language barriers can hinder international trade, while language similarities can boost it due to the weight of communication costs. The economics of language is an interdisciplinary field of study that aims to bring together reflections on the role of language in the economy and conversely on how the economy affects language choices. In this study we focus on the relationship between international trade and language barriers by analysing Portuguese exports of goods and find that language does play an important role in the choice of foreign trading partners although sharing Portuguese as the common language with a group of countries does not imply e...
Foreign languages and trade: evidence from a natural experiment
Empirical Economics, 2015
Cultural factors and common languages are well-known determinants of trade. By contrast, the knowledge of foreign languages was not explored in the literature so far. We combine traditional gravity models with data on fluency in the main languages used in EU and candidate countries. We show that widespread knowledge of languages is an important determinant for foreign trade, with English playing an especially important role. The robustness of our results is confirmed by quantile regressions.