Abstract:
Service trade is more heavily dependent on communication than commodity trade because its production and consumption occur simultaneously. "Linguistic distance," a measure of how closely the majority languages of two nations are related, is negatively correlated with the quality of communication between countries. I show that linguistic distance has a significant nonlinear effect on the level of service trade. For example, a change from communication between majority languages Russian and Danish to Russian and Czech, a decrease in linguistic distance, corresponds to a 17.1% increase in service exports. Additionally, the linguistic distance to English has a significant effect on service trade and points to the use of English as a vehicle language for trade. The data show that linguistic distance has a larger effect on service trade while physical distance has a larger effect on commodity trade.
