Language, Ethnicity and Intra-Firm Trade

39 Pages Posted: 28 Sep 2012

See all articles by Peter Marcel Debaere

Peter Marcel Debaere

University of Virginia - Darden School of Business; Centre for Economic Policy Research (CEPR)

Hongshik Lee

Korea Institute for International Economic Policy (KIEP)

Joonhyung Lee

University of Texas at Austin - Department of Economics

Date Written: June 2012

Abstract

We study the significant variation in intrafirm versus arm's-length trade with micro data. Exploiting the fact that Korean is an uncommon second language and that Korean culture is relatively homogenous, we show how intrafirm sourcing by South Korean affiliates abroad increases with their share of South Korean employees. This positive association is pervasive and nontrivial. Parsing the data more carefully, we find that South Korean employees are primarily high skilled, and that their presence matters for internal trade, not for trade with South Korea per se. The share of South Koreans is also higher in affiliates from nonroutine sectors in host countries that are culturally distant from South Korea. Our empirical evidence thus supports especially Costinot, Oldenski and Rauch (2011)'s view of multinational in-house production for nonroutine activities that require adaptation and internal communication.

Keywords: intra-firm trade, multinationals

JEL Classification: F1

Suggested Citation

Debaere, Peter Marcel and Lee, Hongshik and Lee, Joonhyung, Language, Ethnicity and Intra-Firm Trade (June 2012). CEPR Discussion Paper No. DP9029, Available at SSRN: https://ssrn.com/abstract=2153461

Peter Marcel Debaere (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

HOME PAGE: http://www.darden.virginia.edu/html/direc_detail.aspx?styleid=2&id=5794

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Hongshik Lee

Korea Institute for International Economic Policy (KIEP) ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Joonhyung Lee

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

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