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Modeling Cultural Barriers in International Trade

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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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Bibliographic Info

Article provided by Wiley Blackwell 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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  1. 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.
  2. Edward P. Lazear, 1999. "Culture and Language," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages S95-S126, December.
  3. 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.
  4. Robert E. Hall & Charles I. Jones, . "The Productivity of Nations," Working Papers 96012, Stanford University, Department of Economics.
  5. 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.
  6. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
  7. 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.
  8. 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.
  9. repec:fth:michin:382 is not listed on IDEAS
  10. 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.
  11. John F. Helliwell, 1999. "National Borders, Trade and Migration," NBER Working Papers 6027, National Bureau of Economic Research, Inc.
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Cited by:
  1. Danzer, Alexander M. & Yaman, Firat, 2012. "Do Ethnic Enclaves Impede Immigrants' Integration? Evidence from a Quasi-Experimental Social-Interaction Approach," IZA Discussion Papers 6939, Institute for the Study of Labor (IZA).
  2. Istvan Konya, 2001. "Optimal Immigration, Assimilation and Trade," Boston College Working Papers in Economics 507, Boston College Department of Economics.

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