Language, ethnicity and intrafirm trade

Peter Debaere, Hongshik Lee and Joonhyung Lee

Journal of Development Economics, 2013, vol. 103, issue C, 244-253

Abstract: We study the significant variation in intrafirm versus arm's-length trade with micro data. Exploiting the fact that Korean is an uncommon second language and that Korean culture is relatively homogenous, we show how intrafirm sourcing by South Korean affiliates abroad increases with their share of South Korean employees. This positive association is pervasive and nontrivial. Parsing the data more carefully, we find that South Korean employees are primarily high skilled, and that their presence matters for internal trade, not for trade with South Korea per se. The share of South Koreans is also higher in affiliates from nonroutine sectors in host countries that are culturally distant from South Korea. Our empirical evidence thus supports especially Bergrstrand and Egger (2011)'s view of multinational in-house production for nonroutine activities that require adaptation and internal communication.

Keywords: Multinationals; Intrafirm trade; Arm's-length trade; Cultural distance (search for similar items in EconPapers)
JEL-codes: F10 F20 F23 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Working Paper: Language, Ethnicity and Intra-firm Trade (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:103:y:2013:i:c:p:244-253

DOI: 10.1016/j.jdeveco.2013.02.011

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