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International trade, foreign direct investment, and transaction costs in languages

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  • Oh, Chang Hoon
  • Travis Selmier, W.
  • Lien, Donald

Abstract

We examine the roles of major trade languages in international trade and foreign direct investment (FDI) flows. Empirical results confirm that speaking a common language increases trade and FDI flows, yet the effect of major languages is more substantial in FDI than in international trade. In addition, we find evidence of a hierarchy in transaction costs of major languages in both trade and FDI.

Suggested Citation

  • Oh, Chang Hoon & Travis Selmier, W. & Lien, Donald, 2011. "International trade, foreign direct investment, and transaction costs in languages," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(6), pages 732-735.
    • Handle: RePEc:eee:soceco:v:40:y:2011:i:6:p:732-735
    DOI: 10.1016/j.socec.2011.08.003
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    9. Chensheng Xu & Feng Yao & Fan Zhang, 2015. "An Investigation of Confucius Institute’s Effects on China’s OFDI via Cultural Difference and Institutional Quality," Working Papers 15-45, Department of Economics, West Virginia University.
    10. Papageorgiadis, Nikolaos & McDonald, Frank & Wang, Chengang & Konara, Palitha, 2020. "The characteristics of intellectual property rights regimes: How formal and informal institutions affect outward FDI location," International Business Review, Elsevier, vol. 29(1).
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    13. Cuadros-Solas, Pedro Jesús & Salvador Muñoz, Carlos, 2022. "Disentangling the sources of sovereign rating adjustments: An examination of changes in rating policies following the GFC," Research in International Business and Finance, Elsevier, vol. 59(C).
    14. Fabo, B., 2017. "Towards an understanding of job matching using web data," Other publications TiSEM b8b877f2-ae6a-495f-b6cc-9, Tilburg University, School of Economics and Management.
    15. Amir Maghssudipour & Marco Bellandi & Annalisa Caloffi, 2023. "The role of language in international trade and the “made in Italy”," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 677-702, September.
    16. Ziad Ghaith & Donald Wagner, 2025. "The impact of cultural factors on international trade: an empirical analysis," International Economics and Economic Policy, Springer, vol. 22(3), pages 1-21, July.
    17. Liang Chen & Wanli Li, 2022. "Language acquisition and regional innovation: Evidence from English proficiency in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(1), pages 178-191, January.
    18. Ly, Amadú & Esperança, José & Davcik, Nebojsa S., 2018. "What drives foreign direct investment: The role of language, geographical distance, information flows and technological similarity," Journal of Business Research, Elsevier, vol. 88(C), pages 111-122.
    19. Wei Feng & Yanrui Wu & Yue Fu, 2021. "Dialect Diversity and Foreign Direct Investment in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(2), pages 49-72, March.
    20. Mariya Neycheva, 2015. "Impact of Secondary and Tertiary Education on Economic Growth: a Co-integration Model for Bulgaria," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 82-106.
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    More about this item

    Keywords

    Language; Gravity equation; International trade; Foreign direct investment; Transaction costs;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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