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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.

Suggested Citation

  • István Kónya, 2006. "Modeling Cultural Barriers in International Trade," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 494-507, August.
    • Handle: RePEc:bla:reviec:v:14:y:2006:i:3:p:494-507
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    References listed on IDEAS

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    1. 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.
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    4. 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.
    5. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
    6. 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.
    7. 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.
    8. Edward P. Lazear, 1999. "Culture and Language," Journal of Political Economy, University of Chicago Press, vol. 107(S6), pages 95-126, December.
    9. John F. Helliwell, 1997. "National Borders, Trade and Migration," NBER Working Papers 6027, National Bureau of Economic Research, Inc.
    10. 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.
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    Cited by:

    1. 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.
    2. Jaeok Park, 2015. "Cultural Barriers in International Trade and the," Korean Economic Review, Korean Economic Association, vol. 31, pages 267-300.
    3. James Foreman-Peck & Peng Zhou, 2015. "Firm-Level Evidence for the Language Investment Effect on SME Exporters," Scottish Journal of Political Economy, Scottish Economic Society, vol. 62(4), pages 351-377, September.
    4. Alexander M. Danzer & Firat Yaman, 2013. "Do Ethnic Enclaves Impede Immigrants' Integration? Evidence from a Quasi-experimental Social-interaction Approach," Review of International Economics, Wiley Blackwell, vol. 21(2), pages 311-325, May.
    5. Istvan Konya, 2001. "Optimal Immigration, Assimilation and Trade," Boston College Working Papers in Economics 507, Boston College Department of Economics.
    6. Aurélien Portuese, 2012. "Law and economics of the European multilingualism," European Journal of Law and Economics, Springer, vol. 34(2), pages 279-325, October.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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