Heterogeneous immigrants, exports and foreign direct investment: The role of language skills

Abstract

We investigate the interplay of language skills and immigrant stocks in determining bilateral FDI outstocks of OECD reporting countries. Applying a Poisson panel estimator to 2004–11 data, we find robust evidence for a positive effect of bilateral immigrants on bilateral FDI‐provided that residents of the two countries have few language skills in common. We find a similar effect for immigrants from third countries that speak the language(s) of the FDI host country, making them potential substitutes for bilateral migrants. Our findings suggest that immigrants facilitate outgoing FDI through their language skills, rather than through other characteristics like cultural familiarity.

Je ne parle pas français—So what? The impact of language on skilled German migrant women’s employment in France

“…This phenomenon observed on the migrants’ individual level becomes understandable when analyzing these language issues from a France–Germany country level. Knowing that France and Germany have strong economic ties in terms of trade and foreign direct investment (DESTATIS, 2020) and in line with findings in the gravity model of trade theory that common language facilitates intercultural communication and, therefore, economic transactions between countries (Fidrmuc and Fidrmuc, 2016; Hutchinson, 2002; Lücke and Stöhr, 2018), it is understandable that German language skills yield a competitive advantage in the investigated context. A majority of the informants affirmed this point.…”

“…Therefore, we caution against simplifying the role of language in the gravity model of trade, as scarce language skills alone might not translate into higher employability. As our findings demonstrate, there may also be other skills or characteristics to consider that are beyond the scope of mere grammatical language mastery (Lücke and Stöhr, 2018), such as cultural knowledge (Zhang and Peltokorpi, 2016), the level of education (Hijzen and Wright, 2010) or internationality of personal and professional background. However, the informants underlined that their mother tongue and their knowledge of English made them more appealing to employers looking for intercultural translators and facilitators (Melitz and Toubal, 2014), especially in the context of a high degree of bilateral economic transactions between France and Germany (DESTATIS, 2020) and the growing internationalization of business relations, which demands proficiency in English.…”

“…It was argued earlier that migrants may facilitate international economic transactions such as trade or foreign direct investment because they ease intercultural communication reducing misunderstandings and conflict, are able to build networks with partners and clients, and can easier detect market trends (Lücke and Stöhr, 2018). In the case of skilled German migrant women in France, German and English language skills as well as related culture-sensitive communication abilities met a clear demand of either German companies that have a presence in France, French companies trading with or investing in Germany, or multinational companies with multinational teams and clients.My very first job was with the subsidiary of a German company in France.…”

“…If the same language is spoken by enough people in two countries, communication is enhanced, resulting in easier, cheaper, and more intensive trade between the two countries (Fidrmuc and Fidrmuc, 2016). Therefore, the presence of migrants may facilitate international economic transactions such as trade but also foreign direct investment (Lücke and Stöhr, 2018) by reducing intercultural communication costs. In other words, migrants may play an important role as fluency in their mother tongue could be a determining factor in their ability to realize the potential benefits of networking and to effectively use knowledge about their home country’s tastes and markets to promote trade, commerce, and investments between their host and home countries (Hutchinson, 2005; Lücke and Stöhr, 2018; Vidal-Suárez and López-Duarte, 2013).…”

“…The gravity model of trade, for instance, considers the role of language variation as a barrier to bilateral trade and foreign direct investments (e.g., Melitz and Toubal 2014). Through this lens, migrants are viewed as translators and facilitators in international trade (Melitz and Toubal, 2014), and the scarcer the language skills needed to do business with another country are, the more valuable migrants from that country are (Lücke and Stöhr, 2018).…”