Does Ease of Communication Increase Trade? Commonality of Language and Bilateral Trade

Abstract

Gravity model explanations of trade volumes frequently include dummy variables to account for the commonality of language among trading partners. In this paper we use a data set for the number of people in a country who speak English as a first language or English as a second language (Crystal, 1997) as an indicator of the ease with which trade with the United States occurs. Controlling for commodity fixed effects we use SITC three digit industry data centred on 1995 United States bilateral trade with 33 countries to determine the effect of the degree of language commonality on bilateral trade. Both English as a first language and English as a second language are found to be less important for exports than for imports. This is true for all three digit industries as well as when the specific industry groups identified in Rauch (1999) are considered. I INTRODUCTIONWhich products are traded among countries and the volume of trade in these products are two questions that have captured the attention of international trade economists for more than two centuries. Ricardo, Mill, Heckscher, Ohlin, and others have focused on determining which products would be exported and which would be imported. In the 1960s interest shifted to determining the volume of trade and the work of Tinbergen (1962) andLinnemann (1966) are early examples of such studies. Models of these two aspects of trade, however, are quite different. Models that determine which products are traded focus on the relative factor endowments of countries, whereas models of the volume of trade focus on the relative economic size and well being of countries.We focus on the determinants of the volume of trade, which are usually captured in the framework of a gravity model. If one assumes identical and homothetic preferences, then in a gravity model the relative economic size of trading partners determines the potential volume of trade. Economic size is generally measured by some combination of country GDP, population, or per capita GDP. In a gravity model, the difficulty associated with the exchange of

Foreign languages and trade: evidence from a natural experiment

“…To the best of our knowledge, only a few studies focus specifically on the relationship between bilateral trade and languages: Hutchinson (2002), Melitz (2008), Fidrmuc and Fidrmuc (2009) and Melitz and Toubal (2014). Hutchinson considers the role of English in trade relations of a number of countries with the USA.…”

Do African Immigrants Enhance Their Home Nations’ Trade With Their Hosts?

“…To control for related costs, we include the dummy variables (LLOCK i and LLOCK j ) which take the value of one if either country i or country j, respectively, is landlocked. Following Dunlevy (2006) and Hutchinson (2002), who indentify common language as a determinant of trade flows in gravity specifications, we include a dummy variable (LANG ij ) which is equal to one if the host and home countries share a common language. Similarly, we include the dummy variable (ADJT ij ) which takes a value of one if the home and host countries share a common border.…”

Emigrant Effects on Trade: Re-examining the Immigrant-trade Link from the Home Country Perspective

“…Limao and Venables [2001] estimate land transport to be seven times more costly than water transport, and Brooks [2008] reports that every 1 percent increase in transportation costs leads to an estimated 2 percent decrease in a country's exports. Following Dunlevy [2006] and Hutchinson [2002], who indicate that common language is a determinant of trade flows in gravity specifications, we include a dummy variable (LANG ij ) which is equal to one if the home and the host countries share a common language. We also include a dummy variable (ADJT ij ), which takes a value of one if the trading partners share a common border.…”