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Modeling cultural barriers in international trade

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  • Istvan Konya

    ()
    (Boston College)

Abstract

The paper presents a model that analyses 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 some basic properties of cultural and language barriers. First, cultural costs differ from physical ones in that they can be eliminated by learning. Second, learning a language has economies of scale, thus smaller countries tend to invest more into learning. Third, 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 discourages learning - "cultural protectionism" - can be rationalized. Under certain conditions, such a policy can improve global welfare, not just that of the protecting country.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 547.

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Length: 23 pages
Date of creation: 30 Nov 2002
Date of revision:
Handle: RePEc:boc:bocoec:547

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Keywords: International trade; Trade Costs; Culture; Strategic Interactions;

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References

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  1. 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.
  2. repec:fth:michin:382 is not listed on IDEAS
  3. 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.
  4. 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.
  5. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc.
  6. 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.
  7. John F. Helliwell, 1997. "National Borders, Trade and Migration," NBER Working Papers 6027, National Bureau of Economic Research, Inc.
  8. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," NBER Working Papers 8515, National Bureau of Economic Research, Inc.
  9. Robert E. Hall & Charles I. Jones, 1996. "The Productivity of Nations," NBER Working Papers 5812, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
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Cited by:
  1. Alexander M. Danzer & Firat Yaman, 2012. "Do Ethnic Enclaves Impede Immigrants' Integration?: Evidence from a Quasi-Experimental Social-Interaction Approach," SOEPpapers on Multidisciplinary Panel Data Research 519, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Istvan Konya, 2001. "Optimal Immigration, Assimilation and Trade," Boston College Working Papers in Economics 507, Boston College Department of Economics.
  3. Kandogan, Yener, 2011. "Determinants of individuals' preference for cross-cultural literacy: Role of international trade potential," Journal of World Business, Elsevier, vol. 46(3), pages 328-336, July.
  4. Aurélien Portuese, 2012. "Law and economics of the European multilingualism," European Journal of Law and Economics, Springer, vol. 34(2), pages 279-325, October.

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