Working Paper: CEPR ID: DP15701
Authors: Tamara Gurevitch; Peter R. Herman; Farid Toubal; Yoto V. Yotov
Abstract: 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, wesimulate 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.
Keywords: common language; ethnolinguistic diversity; identity; international trade; domestic trade; domestic trade costs; welfare
JEL Codes: D60; F14; F19; C54; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| linguistic similarity within a country (O57) | reduces trade frictions (F19) |
| reduces trade frictions (F19) | enhances domestic trade (F10) |
| domestic common language (DCL) (Y50) | reduces domestic trade costs (F19) |
| domestic common language (DCL) (Y50) | enhances trade flows within Canada (F15) |
| if Quebec were fully bilingual (O51) | Canada's domestic trade could potentially double (N72) |
| repeal of Quebec's Bill 101 (N42) | significant welfare implications for Canada (O51) |
| repeal of Quebec's Bill 101 (N42) | considerable economic effects extending beyond Canada (F69) |
| linguistic similarity (Y80) | accounts for approximately 10% of estimated home bias (G15) |