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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Length: 23 pages Date of creation: 30 Nov 2002 Date of revision: Handle: RePEc:boc:bocoec:547
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Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations H2 - Public Economics - - Taxation, Subsidies, and Revenue
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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.:
Robert E. Hall & Charles I. Jones, 1996.
"The Productivity of Nations,"
NBER Working Papers
5812, National Bureau of Economic Research, Inc.
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