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The Costs of Babylon – Linguistic Distance in Applied Economics

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  • Isphording, Ingo E.
  • Otten, Sebastian

Abstract

Linguistic distance, i.e. the dissimilarity between languages, is an important factor influencing international economic transactions such as migration or international trade flows by imposing hurdles for second language acquisition and increasing transaction costs. To measure these costs, we suggest to use a new measure of linguistic distance. The Levenshtein distance is an easily computed and transparent approach of including linguistic distance into econometric applications. We show its merits in two different applications. First, the effect of linguistic distance in the language acquisition of immigrants is analyzed using data from the 2000 U.S. Census, the German Socio-Economic Panel, and the National Immigrant Survey of Spain. Across countries, linguistic distance is negatively correlated with reported language skills of immigrants. Second, applying a gravity model to data on international trade flows covering 178 countries and 52 years, it is shown that linguistic distance has a strong negative influence on bilateral trade volumes.

Suggested Citation

  • Isphording, Ingo E. & Otten, Sebastian, 2012. "The Costs of Babylon – Linguistic Distance in Applied Economics," Ruhr Economic Papers 337, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:337
    DOI: 10.4419/86788389
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    References listed on IDEAS

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    9. Isphording, Ingo E. & Otten, Sebastian, 2014. "Linguistic barriers in the destination language acquisition of immigrants," Journal of Economic Behavior & Organization, Elsevier, vol. 105(C), pages 30-50.
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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