DP15701 One Nation, One Language? Domestic Language Diversity, Trade and Welfare

Author(s): Tamara Gurevitch, Peter Herman, Farid Toubal, Yoto Yotov
Publication Date: January 2021
Keyword(s): Common language, Domestic trade, domestic trade costs, ethno-linguistic diversity, identity, international trade, welfare
JEL(s): C54, D60, F14, F19, Z13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15701

Using new data on linguistic diversity across and within countries, we examine novel channels though which language affects trade patterns and economic welfare. We find that linguistic similarity within a country accounts for about 10 percent of estimated 'home bias', demonstrating the importance of shared languages for domestic integration. To highlight the general equilibrium implications of domestic language proximity, we simulate the repeal of Quebec's Bill 101, which made French an official language in Canada and established fundamental language rights for French-speakers. The analysis demonstrates that domestic language diversity has significant implications for Canada's welfare but also sizable economic consequences that stretch far beyond its borders.