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Firm-Level Evidence for the Language Investment Effect on SME Exporters

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Abstract

Both analysis of international trade and the knowledge resource theory of the firm imply that language skills should play a vital role in exporting. This may be apparent to large multinationals with sites in many different linguistic locations, but we show it is less obvious to smaller companies. With data on the language used by each of a large sample of European small and medium sized enterprises in their export markets we test and estimate the effects of language assets on language performance in export markets and on export sales. Controlling for the possibility that language skills may be acquired by exporting, we find a very substantial export return to linguistic expertise, indicative of unexploited gains from investment in languages. There is also evidence of greater under-investment in language skills in English-speaking Europe, which we show can be a prediction of Konya’s (2006) trade model.

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  • Foreman-Peck, James & Zhou, Peng, 2014. "Firm-Level Evidence for the Language Investment Effect on SME Exporters," Cardiff Economics Working Papers E2014/6, Cardiff University, Cardiff Business School, Economics Section.
  • Handle: RePEc:cdf:wpaper:2014/6
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    1. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    2. István Kónya, 2006. "Modeling Cultural Barriers in International Trade," Review of International Economics, Wiley Blackwell, vol. 14(3), pages 494-507, August.
    3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    4. Jan Johanson & Jan-Erik Vahlne, 1977. "The Internationalization Process of the Firm—A Model of Knowledge Development and Increasing Foreign Market Commitments," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 8(1), pages 23-32, March.
    5. José Pinho & Lurdes Martins, 2010. "Exporting barriers: Insights from Portuguese small- and medium-sized exporters and non-exporters," Journal of International Entrepreneurship, Springer, vol. 8(3), pages 254-272, September.
    6. William K. Hutchinson, 2005. "“Linguistic Distance” as a Determinant of Bilateral Trade," Southern Economic Journal, Southern Economic Association, vol. 72(1), pages 1-15, July.
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    1. repec:ibn:ibrjnl:v:11:y:2018:i:6:p:89-101 is not listed on IDEAS

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    Keywords

    Internationalisation; language skills; SMEs;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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