DP9441 | The Causal Impact of Common Native Language on International Trade: Evidence from a Spatial Regression Discontinuity Design

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This paper studies the causal effect of sharing a common native language on international trade. Switzerland is a multilingual country that hosts four official language groups of which three are major (French, German, and Italian). These groups of native language speakers are geographically separated, with the corresponding regions bordering countries which share a majority of speakers of the same native language. All of the three main languages are understood and spoken by most Swiss citizens, especially the ones residing close to internal language borders in Switzerland. This unique setting allows for an assessment of the impact of common native (rather than spoken) language as a cultural aspect of language on trade from within country-pairs. We do so by exploiting the discontinuity in various international bilateral trade outcomes based on Swiss transaction-level data at historical language borders within Switzerland. The effect on various margins of imports is positive and significant. The results suggest that, on average, common native language between regions biases the regional structure of the value of international imports towards them by 18 percentage points and that of the number of import transactions by 20 percentage points. In addition, regions import 102 additional products from a neighboring country sharing a common native language compared to a different native language exporter. This effect is considerably lower than the overall estimate (using aggregate bilateral trade and no regression discontinuity design) of common official language on Swiss international imports in the same sample. The latter subsumes both the effect of common spoken language as a communication factor and of confounding economic and institutional factors and is quantitatively well in line with the common official (spoken or native) language coefficient in many gravity model estimates of international trade.