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The Costs of B abylon—Linguistic Distance in Applied Economics
Author(s) -
Isphording Ingo Eduard,
Otten Sebastian
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12041
Subject(s) - gravity model of trade , transaction cost , measure (data warehouse) , immigration , geographical distance , linguistics , economics , database transaction , distance decay , econometrics , sociology , computer science , international trade , microeconomics , economic geography , political science , philosophy , demography , law , data mining , database , population
Linguistic distance, i.e. the dissimilarity between languages, is an important factor influencing international economic transactions such as migration or international trade flows by imposing hurdles for second language acquisition and increasing transaction costs. To measure these costs, we suggest using a new measure of linguistic distance. The L evenshtein distance is an easily computed and transparent approach of including linguistic distance into econometric applications. We show its merits in two different applications. First, the effect of linguistic distance in the language acquisition of immigrants is analyzed using data from the 2000 US C ensus, the G erman S ocio‐ E conomic P anel, and the N ational I mmigrant S urvey of S pain. Across countries, linguistic distance is negatively correlated with reported language skills of immigrants. Second, applying a gravity model to data on international trade flows covering 178 countries and 52 years, it is shown that linguistic distance has a strong negative influence on bilateral trade volumes.