OBSERVARE

Universidade Autónoma de Lisboa

e-ISSN: 1647-7251

Vol. 11, Nº. 1 (May-October 2020), pp. 30-40

VERBAL COMMUNICATION: AN ESSENTIAL FACTOR IN INTERNATIONAL TRADE

Sandra Ribeiro

sandra.chillout@gmail.com

OBSERVARE, Observatory for External Relations, Universidade Autónoma de Lisboa (Portugal)

Maria João Ferro

mjoaofv@gmail.com

Linguistics Centre of Universidade Nova de Lisboa (CLUNL)

Instituto Superior de Contabilidade e Administração de Lisboa (ISCAL, Portugal)

Abstract

Establishing a business relationship is a complex action influenced by different variables. When

we approach the international context, the complexity becomes even greater, with

communication between commercial actors playing a crucial role. In this sense, the promotion

of effective and unimpeded verbal communication between international partners is crucial

for the success of any transaction.

It is in this context that economics of language gains relevance, allowing the inclusion of the

language spoken by the commercial partners as one of the explanatory factors of international

trade, assuming in the explanatory gravitational models of trade flows between countries the

role of facilitator of trade exchanges or, on the contrary, of an obstacle to the commercial

relationship.

Studies in the area of economics of language reveal that economic relations are strongly

influenced by language, but language choices can also be influenced by economic factors,

which is why this is a bilateral relationship. The study we present here focuses on how verbal

communication (measured according to linguistic proximity, that is, a greater or lesser degree

of similarity between the language spoken by two business partners) influences the

commercial relations established in an international context. In this study, we conclude that,

based on data on the volume of Portuguese exports in 2015, the ease of verbal communication

with the trading partner has a positive influence on the increase in trade - in empirical terms,

this conclusion is corroborated by the fact that Spain is Portugal's main trading partner.

We conclude that the language factor is not being well used by the Portuguese State, as the

linguistic proximity could be used to increase Portuguese exports, namely with the countries

that compose the Community of Portuguese Speaking Countries (CPLP) and with those that

integrate the Southern Common Market (Mercosur).

Keywords

International Trade, Verbal Communication, International Economics, Gravitational Model,

Multilingualism

How to cite this article

Ribeiro, Sandra; Ferro, Maria João (2020). "Verbal communication: an essential factor in

imternational trade". JANUS.NET e-journal of International Relations, Vol. 11, N.º 1, May-

October 2020. Consulted [online] on the date of the last visit, https://doi.org/10.26619/1647-

7251.11.1.3

Article received on August 13, 2019 and accepted for publication on March 30, 2020

JANUS.NET, e-journal of International Relations

e-ISSN: 1647-7251

Vol. 11, Nº. 1 (May-October 2020), pp.30-40

Verbal communication: an essential factor in international trade

Sandra Ribeiro; Maria João Ferro

VERBAL COMMUNICATION: AN ESSENTIAL FACTOR IN INTERNATIONAL TRADE

Sandra Ribeiro

Maria João Ferro

1. Introduction

People cannot go about in society unlsess there is system that allows communicating

with others. Although communication is not exclusive to humans, as there are animals

that also have structured systems that allow communication among members of species,

human language stands out due to its huge creative potential - with a limited number of

linguistic signs, human beings are capable of producing an unlimited number of

expressions. However, communication does not depend only on verbal language, as non-

verbal communication plays a fundamental role in the success of human interaction -

gestures, facial expressions, silence, all these elements contribute to the establishment

of interpersonal relationships.

It is in this line that the development of bilateral commercial relations lies: without the

existence of a structured and shared system, interpersonal, inter-group and inter-

organization relationships are not possible; therefore, trade is, if not impossible, at least

extremely difficult when there is no linguistic basis for understanding.

In this article, our aim is to demonstrate the importance of verbal communication in

international trade, embodied in the “language” factor, the structured and shared

communication system that guarantees understanding between business partners. We

will start by examining the topic of economics of language, and then move on to the

analysis of the role of verbal communication in international trade. In point 4, we will

address communication as a determining factor in gravitational models, followed by the

presentation of the methodology and results. Finally, we conclude with some

observations and recommendations.

2. The Economics of Language

The relationship between language and economic science was formally described in the

1960s by Jacob Marschak (1965), who coined the expression “economics of language”.

In his analysis, the author examined economic concepts, such as cost and benefit, applied

to the language.

Studies in the area of economics of language have shown that economic relations are

strongly influenced by language, but language choices can also be influenced by

economic factors, for which reason this is a bilateral relationship. The three major areas

of research in this field revolve around the following axes:

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Verbal communication: an essential factor in international trade

Sandra Ribeiro; Maria João Ferro

- migration: by studying, for example, the influence of mastery of the language spoken

in the host country on the personal income of immigrants;

- foreign direct investment: by analyzing how the choices that investors make can be

motivated by the language spoken in the country where they decide to invest; and

- international trade: by examining the determining role of language in bilateral

relations in the context of international trade

In all these areas of study, language stands out as a factor that can be an asset or,

conversely, a barrier in each sector of social life, both for individuals and organizations.

Considering immigration, for example, the choice of the country where the immigrant

intends to go to is often limited or, at least, influenced by, the command of the language

spoken in that country or by the ease of learning that language (Adserà and Pytliková,

2015). Thus, learning the language spoken in a country (or one of the languages spoken

in the country, in case of multilingual societies) results in a real increase in the personal

income of an immigrant. Analyzing the endogeneity between language and income,

Chiswick and Miller (1995) consider that “linguistic adjustment”, that is, the development

of fluency in the language of the host country, influences the results of the labour market,

specifically the wages that immigrants earn.

The study presented here is based on the same principle that language is a valuable

asset, but falls within the last aspect presented above, insofar as we examine how

communication (measured according to linguistic proximity, that is, a greater or lesser

degree of similarity between the language spoken by two business partners) influences

international business relationships.

3. Verbal communication and international trade

The globalization process, essentially based on economic and cultural integration, of the

last decades has been causing profound transformations, both culturally and

economically. This movement has been intensified exponentially by the creation and

popularization of several technologies that have played a fundamental role not only for

the development of the world economy, but also at cultural level. The communication

networks in this globalized world, increasingly faster and more efficient, allowed

communication and quick access to any part of the globe instantly, thus contributing to

the intensification of international exchanges. International trade represents the

unlimited expansion of the markets for the countries’ economies. This process has

accelerated exponentially thanks to fast communications.

Rahman (2014) argues that companies that try to “conspire” are able to obtain

substantial benefits in terms of communication, especially with the help of a commercial

association. Verbal language is essential for communication in a trade context,

influencing several aspects in the economic area, such as effective communication in

business and international trade, employment opportunities and tourism, among others.

From the point of view of organizations, language can also become a barrier or an

incentive. For Ginsburgh and Weber (2018, p. 6), “Learning (or not learning) foreign

languages results from several economic incentives. The main one is obviously trade”.

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Verbal communication: an essential factor in international trade

Sandra Ribeiro; Maria João Ferro

Among other relevant aspects, the choice of a business partner must consider the

communication possibilities between both partners. Ferro and Ribeiro (2016) present five

language strategies that business partners can use in the specific case of communication

when establishing a business relationship, as follows:

- both partners can master the same language and, therefore, use it to communicate,

as, for example, the case of communication between a Brazilian company and a

Portuguese one, since Portuguese is the official language of both countries;

- partners can resort to intercomprehension, that is, each partner can use its own

language and be understood by the other - to a certain extent, this is a viable

possibility when establishing a commercial relationship between Portugal and Spain,

given that communication is close between Portuguese and Spanish speakers, with

the caveat, as defended by Ferro and Costa (2016), that Portuguese speakers find it

easier to understand Spanish speakers, not only for cultural reasons that influence the

attitude of Spanish speakers, but also, very concretely, for phonetic reasons, which

have to do, among other aspects, with the characteristic of Portuguese vowels;

- both partners can choose one of their languages, as long as the other masters it - for

many years French was the main foreign language spoken in Portugal; despite being

gradually replaced by English, it still remains one of the foreign languages most spoken

by the Portuguese (European Commission, 2012). Thus, and in the case of a

Portuguese company wishing to establish a business relationship with a French

company, there will be the possibility of communicating in French;

- in the absence of a common language, partners may choose to use a foreign language

that they both master and which may possibly be a lingua franca in their sector of

activity or in the geographical region where they are - for a Portuguese company, that

language may be English, the most widely spoken and learned foreign language in

Portugal today (European Commission, 2012; Eurostat, 2015);

- if none of the possibilities for direct communication listed above is feasible, it will be

possible to establish communication through a mediator, who may be a language

professional (a translator or an interpreter) or someone who acts in the market in

question specifically as an intermediary.

Following a study on the role of language in international trade, Melitz (2008, p. 672)

argues:

The underlying hypotheses about the signs of the influences of the

language variables in the study are fairly intuitive, but their full

importance comes out best when we focus on the possible

substitution between domestic and foreign trade. Different

languages are impediments to communication, therefore trade.

To overcome communication barriers to the establishment of bilateral trade, it is not only

the sharing of a common language that can improve communication between business

partners and act as a facilitator of these relationships. Linguistic proximity, that is, the

fact that two languages share many features (such as Portuguese, Spanish, French,

Catalan, and Italian, which are all Romance languages with great affinity) makes it easier

JANUS.NET, e-journal of International Relations

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Vol. 11, Nº. 1 (May-October 2020), pp.30-40

Verbal communication: an essential factor in international trade

Sandra Ribeiro; Maria João Ferro

for speakers of one of the languages to learn another, which will also have positive

repercussions on international trade.

4. Communication as a determining factor in gravitational models

Tinbergen (1962) pioneered the application of the law of gravity equation to analyze

international trade flows, making the international trade gravitational model based on

Newton's theory of gravity. Since then, the gravitational model has become a popular

instrument in the empirical analysis of international trade. Meltiz (2008) argues that the

use of the gravitational model implies the existence of two basic advantages: first, the

model has been the exclusive tool in similar research conducted so far and, secondly,

and more significantly, he considers that the model is particularly suitable as it focuses

on barriers to trade.

According to the basic gravitational model, exports from country i to country j are

explained, at first, by their economic dimension (GDP or GNP), and by their direct

geographical distances. Thus, it concludes that exports between two countries are

positively related to the size of their economies and negatively related to factors that

indicate the existence of barriers to trade, of which the most important is the distance

between the two countries. The initial model is represented by the models (1) and (2)

presented below:

= f [

(GDP

𝑖

GDP

𝑗

)

𝑖𝑗

] (1)

= β

(GDP

. GDP

)

. D

. e

(2)

Subsequently, the model underwent some changes and new variables were added. In

this sense, many considered only the characteristic of some variable, constituting a

dummy variable (a binary variable that assumes the value of 1 when the characteristic

to be analyzed is present, and 0 otherwise).

Over time, the initial model has been improved and expanded with several variables that

intend to explain trade flows between two countries. Thus, besides the basic variables

considered by the model (GDP and distance), other variables were added, such as

population, GDP per capita (Bergstrand, 1990), country size, and communicatio affinity.

In this sense, Melitz and Toubal (2014) refer that the gravitational models used to explain

international trade generally include some linguistic variable, which may correspond to

the country’s official language and/or to foreign languages mastered by a large part of

the country’s population. Several studies like those by Helliwell (1998), Melitz (2008),

Egger and Lassmann (2012) have already established the relationship between the

sharing of a common language and the volume of commercial transactions between two

countries. Meltiz (2008) states that, without controlling other barriers and capital gains

for trade besides language – distance, political association, relations between former

colonies and others – it would be difficult, if not impossible, to make inferences about

linguistic effects as such.

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Sandra Ribeiro; Maria João Ferro

The equation of the gravitational model implies the logarithmization of its variables,

originating a log-log model. Thus, an example of an augmented model of other variables

can be presented as in model (3), in the following form:

Ln(T

) = β

+ β

Ln (GDP

GDPj) + β

LnD

+ β

Lang

+ β

Cont

+ β

RTA

+ ε

(3)

Where i and j represent countries and the variables are defined as:

– volume of trade (considering just exports or just imports, or both) between two countries;

GDP – Real GDP;

D – Distance;

Lang – dummy variable that takes the value 1 when i and j share a common language and 0

otherwise;

Cont – dummy variable that takes the value 1 when i and j share a common border and 0 otherwise;

RTA – dummy variable that takes the value 1 when i and j belong to a free trade area and 0

otherwise.

The “linguistic proximity” “variable” is often used in order to quantify the proximity

between two languages. This has been used in the past by several authors: Chiswick and

Miller (2005) used the results of assessment tests in the context of learning a foreign

language; Melitz (2008) made the division between open-circuit languages and direct-

communication languages; Lohman (2011) created the Language Barrier Index. Ferro

and Ribeiro (2016) created a method of classifying linguistic proximity based on linguistic

criteria, specifically etymological criteria, from which they organized languages according

to the linguistic family to which they belong.

5. Methodology and results

In order to analyze the relationship between Portuguese exports and the linguistic

proximity between Portugal and the countries considered to be its main trading partners,

we have prepared several studies. In all of them, we used the gravitational model, which

is the most commonly used econometric instrument for the study of international trade,

and its theoretical foundations were explored, for example, in the works of Anderson

(1979), Helpman and Krugman (1985) and Kalirajan (1999). The increase in the use of

this model is mainly due to its ease of implementation, as well as the success it has had

in the analysis of trade flows from several countries, and even economic blocs.

Although our focus is on verbal communication, it should be noted that gravitational

models include other variables whose authors consider to be capable of explaining

international trade. Many studies have been carried out relating these variables.

Egger and Lassmann (2012) analyzed the effect of 701 coefficients captured by linguistic

distances in 81 articles published between 1970 and 2011 in 24 journals. They conclude

that, for a distance of less than 10% between the two countries, their trade increases by

about 5%. Melitz and Toubal (2014), on the other hand, used the bilateral trade model

(for 200,000 observations on transactions carried out from 1998 to 2007) in order to

unravel the many effects that languages can have on trade. Accordingly, they built four

JANUS.NET, e-journal of International Relations

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Verbal communication: an essential factor in international trade

Sandra Ribeiro; Maria João Ferro

types of bilateral distances between countries: common official language, common

mother tongue, common spoken language and linguistic distances, as they consider that

each of them has a specific role in facilitating communication between the citizens of both

countries involved in trade. Krisztin and Fischer (2014) also use the dummy variable

“common language” in the gravitational model in the study of 21,170 observations that

translate bilateral flows between 146x145 country pairs. They conclude that the impact

on trade flows may be close to 90% greater if countries share the same language.

In this context, we have also carried out several studies relating trade flows between

countries with linguistic proximity. In Ferro and Ribeiro (2016), 56 main Portuguese

trading partner countries (in 2013) were grouped according to their language families.

The criteria underlying the classification were: (i) linguistic criteria: languages were

classified according to an etymological principle, based on their linguistic family; (ii)

similarity between languages: given that Portuguese is a Romance language, languages

belonging to that family were included in this group to explain the similarity between

them; (iii) foreign languages: including four languages: English (the foreign language

most commonly studied in Portugal), which is a Germanic language, followed by two

Romance languages (French and Spanish) and then by another Germanic language,

German. The objective was to analyze whether the fact that the language of the

commercial partner belongs to each of these language families has a direct relationship

with Portuguese exports to that country. In the study, one finds support for one of its

basic hypotheses - specifically the fact that Portuguese exports are greater to countries

that share a similar language. We thus concluded that there is a direct relationship

between the volume of Portuguese exports and the fact that the destination country has

an official Romance language. Since this is also the linguistic family of Portuguese, this

result was expected, given that when countries share the same language, the linguistic

barrier is removed, facilitating communication between them and enabling closer

communication; therefore, costs tend to be lower - the same is true, although to a much

lesser extent, when there is linguistic proximity between the languages spoken in both

countries.

Thus, we introduced a new variable called “ProxLing”, which aims to capture the linguistic

proximity between two countries. We defined this variable taking into account the official

language of the destination country, which should be Portuguese, Spanish or English.

Our objective was to capture a triple effect: with this variable, we identified the countries

that share a common language with Portugal, but we also included those that have

Spanish as an official language to reflect linguistic proximity, and those that have English

as the official language to capture the effect of the most studied and spoken foreign

language in Portugal.

Ribeiro and Ferro (2017) presented the relationship between the volume of exports from

Portugal to its 98 main trading partners around the world in 2013, considering the

countries' membership of the European Union (EU) or Mercosur, and the linguistic

proximity between the official languages of those countries and Portuguese. Taking into

account only the countries belonging to the EU economic bloc, we have organized them

according to the linguistic family to which their official language belongs. In line with a

study that we had previously conducted (Ferro and Ribeiro, 2016), we proposed a triple

approach to the influence of language on Portuguese foreign trade, after grouping the 28

EU member states according to their language families. Given that, at this stage in our

study, we were interested in isolating the two language families most relevant to

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Sandra Ribeiro; Maria João Ferro

Portugal's foreign trade - taking into account the classification of Portuguese and also the

country's linguistic policies with regard to the teaching and learning of foreign languages

- we classified all other languages as belonging to the Others group, thus eliminating the

need for a more detailed classification. We concluded that there is a direct relationship

between the volume of Portuguese exports and the fact that the destination country has

an official Romance language. When two countries share the same or a very similar

language, the communication barrier is blurred or even eliminated and, consequently,

transaction costs tend to be lower. We also conclude that taking into account all EU

Member States, the volume of Portuguese exports is higher for countries whose official

language is similar to Portuguese.

Although in these studies the impact of communication on international trade is obvious,

in order to consider more recent data, we carried out the analysis of the volume of

Portuguese exports in 2015, considering Portugal’s main 61 trading partners and

studying the following equation (model 4):

Ln(Tij) = β0 + β1 Ln GDP + β2 EU + β3 LnDij + β4 ProxLingj + εij (4)

Where the variables represent the following:

T – volume of exports between two countries (in this case: Portugal and its commercial partner);

GDP – real GDP;

EU - dummy variable that takes the value 1 if the country belongs to the EU and 0 otherwise;

D – Distance;

ProxLingi – dummy variable that takes the value 1 if i and j have linguistic proximity to Portugal

(spoken language: Portuguese, Spanish or English) and 0 otherwise

Table 1 - Model estimation results (4)

Explanatory Variables

Ln Exports

MMQ coefficient

Standardized coefficient (Beta)

Constant

17,036

(1,939)

------

LnPIB

0,421

(0,53)

0,622

-0,062

(0,306)

-0,021

LnD

-1,109

(0,197)

-0,588

ProxLing

0,971

(0,233)

0,319

F = 30,375

= 0,685

Source: authors’ own

Remarks:

Numbers in parentheses are standard deviations. Significance level of 5%.

After conducting the regression study using the SPSS software, the impact of all the

explanatory variables in the model was analyzed taking into account the following

indicators: (i) global significance test (test F); (ii) individual significance test (test t),

considering, in both, a 5% significance level, and (iii) determination coefficient (R

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According to all the variables presented in the table, the results obtained reveal that the

one that has the greatest explanatory capacity at the level of exports is linguistic

proximity.

Thus, as expected, the fact that a country belongs to the EU has a positive impact on the

volume of Portuguese exports to that destination, not only due to the importance of

belonging to the same economic bloc, but also because of the relative physical proximity

between all EU member states. In fact, we could also see that the increase in distance

has a negative effect on the volume of exports, causing it to decrease by 1.109% for

each 1% increase in the number of kilometers that separate both countries (accounting

for the distance between capitals).

In previous studies (cf. Ribeiro and Ferro, 2017), we also found a direct relationship

between the volume of exports from Portugal to a given country and the official language

of that same country – if a country’s official language is a Romance one, there is a positive

relationship with great explanatory capacity between the volume of exports and the

linguistic proximity of the official languages of the two countries involved in the bilateral

relationship. This linguistic proximity was measured using the ProxLing variable, which

includes Portuguese, Spanish and English. The latter was included in the variable not

because of its effective proximity to Portuguese, as it is a language of another linguistic

family (Germanic, not Romance), but, because, due to the linguistic policies implemented

in Portugal, English is a language spoken by a large part of the population.

By blurring or eliminating the communication barrier, linguistic proximity allows

transaction costs to fall. These conclusions are consistent with the gravitational model,

as presented.

Conclusion

The increasing internationalization of economies has been implying an increasing

importance and appreciation of the language factor. Especially in a global context that

strongly propels the Portuguese economy towards internationalization, the language

factor as a facilitator of communication in international trade has proved to be an

extremely relevant axis.

In this sense, the choice of a commercial partner should take into account, among other

factors, the language factor. Since communication between economic partners is an

essential factor for the success of the relationship, it is in the interest of these partners

to eliminate, or blur, language barriers, so that they can reduce the costs of commercial

transactions.

In this study, we conclude that, with data on the volume of Portuguese exports for 2015,

the ease of verbal communication with the trading partner has a positive influence on

the increase in trade - in empirical terms, this conclusion is corroborated by the fact that

Spain is Portugal's main trading partner, highlighting the fact that, as shown, other

variables also explain it, such as geographical proximity.

In our opinion, the language issue is not being used well by the Portuguese State, as it

could take more advantage of linguistic proximity to promote bilateral commercial

relations with the countries that make up the Community of Portuguese Speaking

Countries (CPLP) and with those that make up the Southern Common Market (Mercosur).

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On the other hand, the importance of language policies and the influence they will have

on the training of future generations of entrepreneurs is also not widespread among the

population, despite the current focus on learning English, which is undoubtedly an asset

for generations to come.

We therefore consider that, given the relevance of linguistic proximity for the ease of

communication between business partners and, consequently, for the increase in the

volume of exports, the Portuguese State should make a set of linguistic policies aimed

precisely at promoting trade relations based on linguistic proximity.

In fact, although the course is not yet clear, the possibility of English losing some ground

as the most widely used language within the European Union is on the table. It is true

that English is unlikely, in the near future, to cease being the lingua franca in many

sectors of society, specifically in the world of business, but other languages may gain

preponderance. In a new geopolitical organization, it will be up to the languages to

reorganize themselves and concretely the Portuguese official entities will have to take

advantage of any leeway that may come, taking advantage of the economic potential

that the Portuguese language already has today.

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