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Title: Language, Ethnicity and Intra-firm Trade

Author(s): Peter Debaere, Hongshik Lee and Joonhyung Lee

Publication Date: June 2012

Keyword(s): intra-firm trade and multinationals

Programme Area(s): International Trade and Regional Economics

Abstract: We study the significant variation in intrafirm versus arm?s-length trade with micro data. Exploiting the fact that Korean is an uncommon second language and that Korean culture is relatively homogenous, we show how intrafirm sourcing by South Korean affiliates abroad increases with their share of South Korean employees. This positive association is pervasive and nontrivial. Parsing the data more carefully, we find that South Korean employees are primarily high skilled, and that their presence matters for internal trade, not for trade with South Korea per se. The share of South Koreans is also higher in affiliates from nonroutine sectors in host countries that are culturally distant from South Korea. Our empirical evidence thus supports especially Costinot, Oldenski and Rauch (2011)?s view of multinational in-house production for nonroutine activities that require adaptation and internal communication.

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Bibliographic Reference

Debaere, P, Lee, H and Lee, J. 2012. 'Language, Ethnicity and Intra-firm Trade'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9029