A Surprising Way to Boost Economic Growth

Dating back to the Inca, Kichwa is an indigenous tongue spoken by half a million people. in Ecuador’s Andes region, Kichwa mixes with Spanish to form a unique blend. One linguist said that Kichwa makes Spanish melodic and gentle. It also introduces some new grammar.

The NY Times gave us an example of the blend:

After two children “darted” through traffic, an Ecuadorian woman said, “¡Wawas irki, los van a atropellar!”  The two Kichwa words in her response were “Wawas” which means children and “Irki,” rebellious. Combining Kichwa with the standard Spanish in the sentence, she said, “Wild children, you’re going to get run over!”

Where are we going? Economies benefit from being bilingual.

The Benefits of Being Bilingual

Language policy affects trade and national cohesion. But contrary to what we would expect, mandating a single language creates less cohesion. The reason? It’s exclusionary.

When we support bilingualism, we pull more people into the markets we want to optimize. Diminishing fragmentation, we create more economic opportunity. As a result, a country’s language policy shapes domestic and international trade. It can determine how much and with whom we trade.

In a recent paper, four economists presented three scenarios to prove the value of being bilingual.

Scenario #1:

Increase the Spanish speaking population. If 10% of the US population shifted to Spanish only, then the domestic market would become more fragmented. Consequently, they calculated that U.S. welfare falls by 1.1%. As for international trade, Spanish speakers like Mexico gain but a more fragmented domestic economy loses.

Scenario #2

Increase the bilingual population. Instead of English only, assume 10% of the population becomes fluent in Spanish. Here, smoothing domestic frictions, we have U.S. welfare up by .3%. At the same time, internationally, we create a closer bond with Mexico and other Spanish speaking countries.

Scenario #3

When Spanish speakers become bilingual, the country benefits the most. Increasing domestic cohesion, the welfare gain is estimated at 1%. Internationally, though, more domestic trade diminishes international ties.

Our Bottom Line: Transaction Costs

When economist Ronald Coase, first described a transaction cost in “The Nature of the Firm” (1937), he took us to three kinds of cost. Using the economic definition of cost as sacrifice, he said that we experience a search cost. When we look for a good or service, time is a cost because we sacrifice an alternative use of those moments or hours. In addition, the search could cost money. Next, we have a bargaining cost that will be minimal if we know the result, or much higher if it requires the exchange of many documents and assistance from others. Then, at the end, we have an enforcement cost related to implementing an agreement.

A country’s language policy can reduce our transaction costs during the search, the bargaining, and the enforcement.

So yes, we can say that one mandated language reduces the transaction cost of trade. However, that reduction is for the people speaking the selected language. At the same time, its exclusionary impact on the non-majority language population diminishes the country’s economic potential.

Returning to where we began, we can applaud Kichwa’s resilience. Rather amazingly, Kichwa has been around for more than five centuries.

My sources and more: Having read about Kichwa in yesterday’s NY Times, we can leap to the connection between local language and economics. From there, this article provided the academic perspective. In addition, you might find it interesting (as did I) to visit the endangered languages website and this past econlife post. And finally, this paper had a handy Coase summary.

Please note that several of today’s sentences were in a past econlife post.