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Modeling cultural barriers in international trade

  • Istvan Konya


    (Boston College)

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

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Date of creation: 30 Nov 2002
Date of revision:
Handle: RePEc:boc:bocoec:547
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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.
  2. Robert E. Hall & Charles I. Jones, . "The Productivity of Nations," Working Papers 96012, Stanford University, Department of Economics.
  3. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
  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. 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.
  6. 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.
  7. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. John F. Helliwell, 1997. "National Borders, Trade and Migration," NBER Working Papers 6027, National Bureau of Economic Research, Inc.
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