Confucius Institutes And International Trade

How much do language differences affect international trade volume?We answer this question by using data on China's bilateral trade volume.Chinese has the world's largest estimated number of native speakers,but only 15%international trade is processed by this language.As a result,the establishment of the first Confucius institute on 21 November 2004 has been accompanied by high publicity and expectations for spreading Chinese culture and lowering the communication costs in international trade;the number of Confucius institutes increased to 475 by the end of 2014.This paper aims to estimate the effects of Confucius Institutes on China's bilateral trade volume.Following Melitz(2008),linguistic diversity is treated as key measurement of language variables and corresponding trade flows from China to other regions are from a wide range of countries and linguistic origins.