Linguistic fractionalization, trade, and welfare

Abstract

We examine the implications of linguistic fractionalization on trade and welfare, focusing on the United States. Our model identifies the direct and indirect effects of fractionalization on international and domestic trade and welfare. We construct a novel dataset to show that changes in fractionalization impact trade, leading to significant economic consequences. To highlight the general equilibrium implications, we conduct simulations on language policy‐induced changes in the shares and the composition of Hispanic speakers within the United States, showing the importance of considering language policies, as they can yield substantial economic benefits but also sizable economic consequences stretching beyond national borders.