Academic journal article International Journal of Business and Society

The Effect of Language on Trade: The Malaysian Case

Academic journal article International Journal of Business and Society

The Effect of Language on Trade: The Malaysian Case

Article excerpt


This study empirically investigates the relationship between common language and trade by fully utilized gravity model. The model is further augmented to identify whether Malay, Chinese and English language give significant impact on Malaysian bilateral trade with her eighty trade partners over the period 1980 to 2005. The result suggests that a country that have common in language will trade more each other as it can be an important means in reducing the information cost in trade. The result also revealed that besides English as the language of trade, the Chinese language is increasingly important in Malaysian bilateral trade, particularly within Asian countries.

Keywords: Trade, common language, gravity model, Malaysia.


There are many studies tending to relate trade and other aspects such as growth, foreign direct investment, inflation, poverty and migration. However, only a few focused on the effect of languages on trade. According to Ethnologue1, there are 6912 languages in the world. Asia it self has the largest number of languages and the largest number of speakers, accounting for about 61% of all languages speaker in the world. Recently, the increasing involvement in trade, finance, tourism, regional economic integration and international relation has seen the important of having a common language not only to directly communicate but also to understanding the culture, businesses, rules and regulations.

The relationship between language and trade can be viewed as means in the cost of reduction particularly related to the information cost. Anderson and Wincoop (2004) state that the trade cost in industrialized countries cost for about 170 percent which includes transportation cost (21 percent), border related trade barriers (44 percent) and retail and wholesale distribution (55 percent). The Policy Barriers, Language Barriers, Currency Barriers, Information Cost Barriers and Security Barriers are among the items includes in the border related trade barriers. In general, importers or exporters have to start with the process of obtaining the information about markets, products, buyers, sellers, the rules and regulations until the business contract signed between the two business partners. Therefore, in the absence of common language, the two trading partner countries will have difficulty in term of exchange the information and understanding the cross border rules and regulations. These barriers can only be solved by employing the translators or interpreters which directly increases the trade cost.

Lazaro and Medalla (2004) find the use of English Language from cross border communications is increasing important particularly in trade, tourism and international relations among the Asian Pacific Economic Cooperation (APEC) members. Even though English is not official language in the most APEC members, however, the need to understand a common language among the members not only benefit in international relation but also as a means to facilitate trade and lower the trade cost.

As Malaysia involved in many international organization such as World Trade Organization (WTO), United Nation (UN), Association of South East Asia Nation (ASEAN) and APEC and others which English represent as a common language and thus become a second language. English not only become a compulsory subject taught at school but also as a medium in teaching Mathematics and Sciences in all primary and Secondary schools in Malaysia. Malaysia represents a multi-races with multi cultural from the Malay, Chinese, Indian and the Aborigines which they have their own language and dialects. However, under the National Language Act 1967, Malay Language is the official language of Malaysia. Other languages remain as a mother tongue and have been practiced in Chinese and Tamil Schools.

In terms of trade and openness, Malaysia was ranked the fifth most competitive economy in Asia, after Singapore, Hong Kong, Taiwan, and China; and 19th worldwide based on the recently-released World Competitiveness Yearbook 2008, covering 55 economies. …

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