The impact of language borders on the spatial decay of agglomeration and competition spillovers

Abstract

There is now strong evidence that “soft” institutions are interrelated with the working of the economy. For example, in a geographical setting there is evidence that language borders affect interpersonal relationships, but there is no equivalent evidence regarding the effects of language borders on agglomeration or competition spillovers. This paper examines whether language affects the geographical extension of agglomeration and competition spillovers by observing the geography of employment patterns in a linguistically discontinuous setting. Our findings, for the first time, provide empirical evidence that language borders shape the distance decay of competition spillovers, independent of governance, and institutional issues.