Do language barriers affect trade?

Language barriers may be more important to international trade than previously thought. The Language Barrier Index, a newly constructed variable that uses detailed linguistic data, is used to show that language barriers are significantly negatively correlated with bilateral trade.

Research Highlights► New variable (Language Barrier Index) quantifies language barriers between countries ► Language Barrier Index introduced into gravity model of trade. ► The model shows that language barriers are a significant deterrent to bilateral trade.