Foreign Languages and Trade Technical University Košice, Herl’any, October 14-15, 2010 Jarko Fidrmuc OeNB Vienna, Comenius University Bratislava, CESifo Munich, OEI Regensburg Jan Fidrmuc Brunel University London, CEPR, and CESifo The research was largely completed during Jarko Fidrmuc’s stay at the University of Munich. The opinions are those of the author and do not necessarily reflect the official viewpoint of the Oesterreichische Nationalbank or of the Eurosystem. We acknowledge CESIUK support from the Operational Program of Research and Development (OP VaV) in the framework of the European Regional Development Fund (ERDF).
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Foreign Languages and Trade Technical University Košice, Herl’any, October 14-15, 2010 Jarko Fidrmuc OeNB Vienna, Comenius University Bratislava, CESifo.
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Foreign Languages and Trade
Technical University Košice, Herl’any, October 14-15, 2010
Jarko Fidrmuc OeNB Vienna, Comenius University Bratislava,
CESifo Munich, OEI Regensburg
Jan Fidrmuc Brunel University London, CEPR, and CESifo
The research was largely completed during Jarko Fidrmuc’s stay at the University of Munich. The opinions are those of the author and do not necessarily reflect the official viewpoint of the Oesterreichische
Nationalbank or of the Eurosystem. We acknowledge CESIUK support from the Operational Program of Research and Development (OP VaV) in the framework of the European Regional Development Fund (ERDF).
- 2 -
Literature Review – I
• Gravity models usually include also dummies for
common languages as a control variables.
• Helpman, Melitz and Rubinstein (2008) derive the
gravity equation by in a model with heterogenous firms
which stresses the link between productivity and
export performance of firms.
• Their empirical results indicate that common
languages are an important part of fixed costs related
to market entry.
- 3 -
Literature Review – II
Mélitz (2008)
• Official and non-official indigenous languages
• Language impact measured using dummy
variables
(if official or spoken by more than 20%) or
communicative probability
• Only indigenous languages (Ethnologue
database)
- 4 -
Literature Review – III
Rauch (1999, 2001),
Rauch and Trindade (2002),
Bandyopadhyay, Coughlin and Wall (2008)
• Ethnic-networks increase trade
• Rauch and Trindade (2002): ethnic Chinese
networks in SE Asia increase trade by at least
60%
- 5 -
Our Contribution
• First to study effect of native and foreign
(learned) languages alike
- Trade often relies on communication in non-
native languages
• Unique extensive dataset on language
proficiency
in the EU
- 6 -
Data–Foreign Languages
• Special Eurobarometer 255: Europeans and their
Languages, November - December 05.
• Nationally representative surveys; only EU nationals
included.
• Respondents were asked on their language skills:
- Native language(s),
- up to 3 other languages that they speak well enough
to have a conversation,
- Self-assessed proficiency of foreign languages:
basic (not used here), good, and very good.
- 7 -
English (good/very good skills) French (good/very good skills)
Foreign Languages in Europe – I
- 8 -
Foreign Languages in Europe – II
German (good/very good skills) Russian (good/very good skills)
- 9 -
Communicative Probability
• Probability that two randomly selected individuals from two different countries can speak sufficiently well the same language
- English• Languages spoken by at least 10% of population
in at least 3 countries- German - French - Russian (only in Eastern Europe)
• We compute the overall communication probability based of possible multiple knowledge of English, French, and German.
- 10 -
Communicative Probability
EU15 NMS/ACs EU29
English 22 6 13
German 7 1 3
French 5 0 1
Russian 0 4 1
Cumulative 30 6 16
- 11 -
Average Cumulative Com. Probabilities–EU15 (English, German, and French)
0
5
10
15
20
25
30
35
40
45
50
- 12 -
Average Cumulative Com. Probabilities–EUROPA29(English, German, and French)
0
5
10
15
20
25
30
35
- 13 -
Data–Further Variables
• Trade and GDP data are taken from the IMF (IFS and DOT)
• All variables are converted to euro.
• PISA test results in 2006 (because of country availability),
• Public and private expenditures on education in 2000.
• We cover EU15, new member states, and the candidate
countries.
- 14 -
Gravity Model–Core Variables
• Trade (in logs) between countries i and j, Tijt,
• Log of output of i and j, yit and yjt,, measured in
nominal EUR,
• Distance between i and j, dij
• Common border dummy, bij.
• A dummy for former federations in CESEE, fij.
ijijijjtitijt
fbdyyT4321
- 15 -
Gravity Model–Languages
• Communication probabilities: Pfij - English, - English, French, German- Cumulative cummulative probability for English,
French and German
• In this version we do not include dummies for
common languages.
F
fijffijijijjtitijt
PfbdyyT,4321
- 16 -
Gravity Model–Panel Structure
ijtjtit
F
fijffijijijjtitijt
PfbdyyT ,4321
• Time-varying country dummies following Baldwin
and Taglioni (2006): - Country-specific time-invariant and
time-varying omitted variables- Country-specific measurement problems- This lowers the possible endogeneity problems.