DP3590 Language and Foreign Trade

Author(s): Jacques Melitz
Publication Date: October 2002
Keyword(s): foreign trade, gravity model, language
JEL(s): F10, F40
Programme Areas: International Macroeconomics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3590

The significance of a common language in foreign trade hinges on translation as well as the ability to communicate directly. In fact, without admitting the facility of translation from one or two selected languages, it is impossible to explain adequately the impact of a common language on foreign trade. Linguistic diversity at home also promotes foreign trade. But the most significant linguistic influence of all on foreign trade is the ability to read and write any language whatever. Besides these basic results, the study examines three special issues: whether English and other European languages are more effective than other languages in promoting foreign trade; whether there are substitution effects of a common language in foreign trade; and whether network externalities of language impinge on foreign trade.