Common Spoken Languages and International Trade

Abstract

International trade economists are used to controlling for common languages in most studies on the determinants of bilateral trade. The usual measure of common language is a binary variable based on one or several common official languages. The use of this measure lies mainly in the difficulty of quantifying common language use more thoroughly. However, it is not obvious that a common official language adequately reflects the broader impact of language commonality on trade, including language-related ethnic ties and trust and the mere ability to communicate. For this reason, the impact of a binary common official language variable on bilateral trade might mismeasure the role of common languages on bilateral trade at large. In a recent study, Melitz and Toubal (2014) provide an important step toward the understanding of the impact of common languages on bilateral trade based on data on 42 common native and spoken languages in 195 countries. They find that the joint impact of different aspects of common languages is at least twice as large as the one of a common official language. Their findings, moreover, suggest that common spoken languages are particularly important, and the ease of communication plays a substantial role in explaining the role of common languages for bilateral trade.