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The Costs of Babylon – Linguistic Distance in Applied Economics

Ingo Isphording () and Sebastian Otten ()

No 337, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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.

Keywords: Linguistic distance; immigrants; language; transferability; human capital; international trade (search for similar items in EconPapers)
JEL-codes: J24 J61 F22 F16 (search for similar items in EconPapers)
Date: 2012
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Journal Article: The Costs of Babylon—Linguistic Distance in Applied Economics (2013) Downloads
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