The Influence Of Language On Foreign Direct Investment In China

With the deepening of globalization,the communication between different countries and cultures is increasing quickly.Just like money is the medium of commodity exchange,language is the carrier of communication between human,it will affect the economic and trade exchanges between different countries and regions in many ways.For Our country,the exploration of Language Economics has just begun.Nowadays,we analyze the attribute of language most of the human capital,its economic benefits such as the proposition,language policy,and language plans there’re not much research study on the relationship between language and the international economy.Therefore,this paper attempts to explore the possible relationship between language and international foreign direct investment(FDI)from the perspective of linguistic distance.Linguistic distance,usually means the difficulty that citizens learn about another country’s language,or we can say it’s the diversity of different languages.Some research shows that transaction costs brought by linguistic distance may hinder the progress of FDI.In this paper,we set up a partial equilibrium model under the condition of open economy,and make a theoretical analysis of the influence between linguistic distance and foreign direct investment.To eliminate the cost of language barriers brings language costs ultimately reflecting the return on investment projects through various transaction costs which raising the interest rates,and reducing the flow of FDI.Then we use the gravity model to construct language distance metric variables.We studied 16 countries including UK、Japan,which have close economic relations with China,and we use econometric to analysis foreign direct investment flow of China from 2000 to 2015.In traditional gravity model,FDI flow is positively correlated with economic scale of two countries or regions,but negatively correlated with geographical distance between this two countries.The results of this paper confirm the influence of traditional factors.As linguistic aspect,results showed that the regression coefficient of linguistic distance between China and other countries is significantly negative.Indicating that the linguistic distance has a very important relationship with foreign direct investment in China.The closer the language distance is,the larger the foreign direct investment flows to China.Because of close linguistic distance between two countries,the transaction costs would be relatively low,comes out a higher FDI flow.Huge differences in the language will increase the cost of communication,thereby reducing FDI flow.At the same time,we find that the influence of linguistic distance in Europe is not as big as that in Asia.In addition,in the regression based on English linguistic distance,the direct investment flows in China are also related to the linguistic distance,which indicates that the distance of language really has a significant impact on FDI.Based on the results of this paper,on one hand,we should strengthen language education in China,especially English education,improving peoples’ English communication skills to occupy a greater advantage in the fierce international competition;on the other hand,we should actively promote Chinese culture spreading,eliminate language barriers,enhance China’s soft power and influence around the world.Distinguish the promotion policy of Chinese in different regions according to local conditions in order to achieve the greatest promotion effect.At the same time,we should vigorously develop the language industry to promote the development of China’s economy.