Modeling Cultural Barriers in International Trade

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Modeling Cultural Barriers in International Trade

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István Kónya

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István Kónya

Abstract

The paper presents a model that analyzes the role of cultural differences in international trade. The decision to study foreign cultures and languages is incorporated into a simple trade model, which captures basic properties of cultural and language barriers. First, cultural costs differ from physical ones in that they can be eliminated by learning. Secondly, learning a language has economies of scale, thus smaller countries tend to invest more into learning. Thirdly, learning decisions within one country impose an externality on trading partners, since learning by one party makes communication easier also for the other one. This implies that learning decisions are in general inefficient, and the paper derives the connection between the equilibrium and optimal outcomes. Finally, because of the substitutability of learning among countries, a policy where a country subsidizes learning in the other nation-"cultural protectionism"-can be rationalized. Under certain conditions, such a policy can improve the welfare of both countries, in contrast to the case of regular export subsidies. Copyright © 2006 The Author; Journal compilation © 2006 Blackwell Publishing Ltd.

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Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 14 (2006)
Issue (Month): 3 (08)
Pages: 494-507
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Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:494-507

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Paper
- Istvan Konya, 2002. "Modeling cultural barriers in international trade," Boston College Working Papers in Economics 547, Boston College Department of Economics. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," International Trade 0012003, EconWPA. [Downloadable!]
- Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series 1010, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
- Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc. [Downloadable!]
Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December. [Downloadable!] (restricted)
James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics. [Downloadable!]
Other versions:
- James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," NBER Working Papers 8515, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
James E. Rauch & Alessandra Casella, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," NBER Working Papers 6628, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Casella, Alessandra & Rauch, James E, 1998. "Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties," CEPR Discussion Papers 1978, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
repec:fth:michin:382 is not listed on IDEAS
Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
- Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc. [Downloadable!]
Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
Other versions:
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics. [Downloadable!]
Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Robert E. Hall & Charles I. Jones, 1996. "The Productivity of Nations," NBER Working Papers 5812, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Robert E. Hall & Charles I. Jones, . "The Productivity of Nations," Working Papers 96012, Stanford University, Department of Economics.

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Istvan Konya, 2001. "Optimal Immigration, Assimilation and Trade," Boston College Working Papers in Economics 507, Boston College Department of Economics. [Downloadable!]

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