Linguistic Barriers to Financial Flows
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Date
2018-05
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The Ohio State University
Abstract
Historical ties and linguistic similarities between countries are highly correlated with outcomes in the financial sector. Various types of linguistic relationships all affect information flows between populations, and countries with similar languages can more easily share ideas and are likely to have come from similar historical groups. There is evidence that linguistic factors have a strong relationship with bilateral trade, and I test whether this is also true for financial flows. Using bilateral data on the debt and equity flows between the 35 OECD countries in 2002 to 2012, I examine the changing patterns of financial flows and language between countries. I find that the relationship between linguistic similarity and equity flows is significant and large in magnitude before 2008. After 2008, this pattern holds. However, the relationship between linguistic similarity and debt flows is not strong before or after 2008. Despite integration under the European Union and institutions like the OECD, historical linguistic patterns of financial flows still hold in times of economic prosperity.
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Keywords
language, linguistic barriers, finance, flows, economics