Talking Trade: Language Barriers in Intra-Canadian Commerce

Abstract

This paper tests for one mechanism that can explain the existence of a language barrier to trade. Specifically, I ask if those industries that require more cross-border communication in order to export their products trade more between Canadian provinces that know the other's language(s). I find that trade in industries with a need to communicate directly (orally) with importers increases with the probability that people in another province speak the same language. This finding can fill a missing link in the empirical trade literature, which lacked convincing arguments for the observed correlation between language commonality and the total volume of trade.

Language in International Business: A Review and Agenda for Future Research

“…Organizational behavior and cross-cultural management scholars approach language with theories on culture (e.g., Harzing et al 2002;Kassis Henderson 2005), social identity (e.g., Groot 2012; Reiche et al 2015), power relations (e.g., Neeley 2013;Hinds et al 2014), emotions (e.g., Neeley et al 2012;Tenzer and Pudelko 2015), and a range of other phenomena. Those with a background in economics apply, among others, the gravity model of trade (e.g., Melitz and Toubal 2014;Sauter 2012), transaction cost economics (e.g., Selmier and Oh 2013), or linguistic relativity (e.g., Chen 2013). Strategy researchers focus predominantly on resource-based explanations for the internationalization of MNCs and new ventures (e.g., Fernandez-Ortiz and Lombardo 2009;Hurmerinta et al 2015).…”

“…Largely separated from other streams covered in this review, economists started in the early 2000s to extend this work to consider the role of language variation as a barrier to bilateral trade. Initial work relied on binary variables to indicate whether or not countries share an official language, whereas later studies have considered the distance between language families, the role of minority languages (Sauter 2012), and differences in translation or direct communication (Melitz 2008;Melitz and Toubal 2014). Controlling for the stock of immigrants and other factors, a consistent finding Language in International Business: A Review and Agenda… 823 around the world is that greater distance between/amongst languages is associated with less trade across these nations.…”

“…Controlling for the stock of immigrants and other factors, a consistent finding Language in International Business: A Review and Agenda… 823 around the world is that greater distance between/amongst languages is associated with less trade across these nations. As summarized by Sauter (2012), countries with a common language trade 1.5 times more and the language barrier amounts to a tax equivalent of about 7%, while Egger and Lassman's (2015) meta-analysis suggests that a common language increases trade flows by 44%. Related research demonstrates that language is a barrier to trade across Canadian provinces (Sauter 2012), 36 countries (Hutchinson 2005), and a 19 language, 195-country dataset (Melitz and Toubal 2014).…”

“…Cross-national economic research mostly relies on linguistic distance, i.e. a measure of how difficult speakers of one language find it to learn the other (Hutchinson 2005), or as a predictor of trade patterns and various other outcomes (Sauter 2012;Melitz and Toubal 2014).…”

Cultural Integration and Export Variety Overlap across Countries

“…Egger and Lassmann (2012) provide a large number of references and a meta analysis on the subject. Articles which focus on common language as a driver of trade are Melitz (2008), Fidrmuc and Fidrmuc (2009), Falck et al (2012), Melitz and Toubal (2014), Sauter (2012), Egger and Lassmann (2013). To the extent that common language is a measure of common culture (Laitin, 2000;Fearon, 2003;Ginsburgh and Weber, 2013), this research is related to the role of common culture and economic exchange (Guiso et al, 2006(Guiso et al, , 2009Felbermayr and Toubal, 2010).…”