The role of language connectedness in reducing home bias in trade, investment, information, and people flows

Palitha Konara

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: This study introduces the concept of a country’s language connectedness (LC), namely, the extent to which the country is connected to the rest of the world in terms of the number of potential communicative partners. LC depends on the extent to which the country’s languages are spoken outside that country. Operationalizing and constructing an index capturing LC, I empirically show that a country’s LC is strongly associated with its globalization level. This effect is particularly strong in cross-border trade and investment and information flows. I also find that countries with languages belonging to large linguistic families (i.e., countries with greater linguistic connectedness) are more globalized. This study presents language barriers as a key contributor to home bias, that is, the tendency toward more within-border than cross-border interactions.

Keywords: Language; Globalization; Home bias; Economic integration; Linguistic distance (search for similar items in EconPapers)
JEL-codes: F15 F2 F21 F23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531919308074

DOI: 10.1016/j.ribaf.2020.101180

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