Why does language really matter? Evidence from EU and Mercosur Trade

UID/LIN/03213/2013International trade has been increasing not only due to globalization, but also due to the economic integration process of the past century. However, there are still some barriers that hinder international trade and one of those can be the different languages spoken by both trading partners. Therefore, language may influence the choice of an international trading partner, since it can increase or decrease transaction costs. On the other hand, the creation of trading blocs, such as the European Union (EU) and the Southern Common Market (Mercosur), has enabled national economies to profit from regional trade networks. In this paper we look at the relationship between Portuguese exports and the dominant language in the destination country, while also analysing the influence of belonging to these two trading blocs. Taking a closer look at Portuguese data, we conclude that language similarity plays a relevant role in the choice of international trading partners, as does belonging to the EU.publishersversionpublishe