Language, learning, and location

de Andrew John

"Language is a fundamental tool for communication of ideas between people, and so is an essential input into production and trade. In general, a society will possess more production and consumption opportunities when all its members share a common language. Neighboring societies and communities likewise have a strong incentive to utilize a common language, and indeed there are countless examples of language assimilation, especially in the last one hundred years. Hence, it is puzzling that more assimilation has not occurred. History has recorded numerous examples of communities that coexist with distinct languages and limited economic interaction. This paper presents a stylized model to reconcile both assimilation and non-assimilation. We abstract from cultural and historical factors, which are of course significant, but are present in both. The model has two languages, two locations, and two time periods. Agents are initially endowed with one or both languages and a location. Agents choose whether or not to learn the other language, and subsequently choose whether or not to move to the other region. Language facilitates production: an agent can produce output only in conjunction with others who share the same location and language. Consequently, there are strong incentives to locate with others who share the same language, and to learn the language that others speak. The cost of learning is endogenous: agents who are learning cannot produce. Our model delivers a full assimilation equilibrium, as well as geographic and linguistic isolation equilibria. In the latter equilibria, location and language barriers prevent economic interaction from occurring. Increasing returns and strategic complementarities are present, but sometimes they operate locally, in addition to globally"--Federal Reserve Bank of New York web site.