# **5.4. Impact of language externalities on diffusion of the Internet**

Given the fact that Internet diffusion is heavily determined by network effects, it is important to understand if language plays a role in the size of the network effects. Is the number of Internet users in Argentina (Spanish speaking country) likely to foster the number of Internet users in China? It is intuitive to think that sharing the same spoken language as other users would also contribute to network effects and thus to Internet diffusion<sup>22</sup> ? The importance of language as an explanatory variable of Internet diffusion has been ignored in the literature.

To test the role of language on Internet diffusion, we classify countries by official language using the ten most used languages in the Internet. These languages are English (with 28.9 percent of the users), Chinese (14.7 percent), Spanish (8.9 percent), Japanese (7.6 percent), German (5.2 percent), French (5.0 percent), Portuguese (3.6 percent), Korean (3.0 percent), Italian (2.7 percent), and Arabic (2.5 percent).<sup>23</sup> All other languages with a share of less than 2.5 were grouped in the category “others”.

Table 7 presents the estimation results of equation (3) where the diffusion effect related to a network with the same language is identified separately from the general diffusion effect within a given country. For the estimation we define a variable equivalent to the lagged variable of the sum of users that speaks the same language around the world excluding the users of a given country. The first element that this table shows is that the results and estimates are consistent with the results presented in tables 3 and 4. It also demonstrates that language, as a proxy of network externalities of users speaking and sharing contents in a common language matters. Controlling by the diffusion coefficient within the country _i_ , a 10 percent increase in the number of users sharing the same language in other countries will increase 2.4 percent the number of users in country _i_ . Another result is that the language externality effect seems to be more relevant for upper middle income countries. Again, this may suggest that the two groups of countries under study are facing different stages of the diffusion process. It also may suggest that when users basically connect to Internet for social and personal reasons or for local work use, one can expect the (internal) national network to be the only significantly important network. However, when the use is more professionally oriented, with internationally opened and globalized firms, the international network is likely to play a preponderant role in the incentives of being an Internet user. It is very likely that this is the case of new users in the upper middle income countries. In the case of low income countries, it is probable that users that access the Internet in the first stage are not constrained by language. Assuming that the main group of users for a given country is the one with higher income and human capital, it is very likely that this group is also able to read English, making less relevant the need of available contents in their own language.

> 22 Continuing with the example of Argentina, the number of users in this country should increase when the number of users in the rest of Spanish speaking Latin American countries and Spain increase.

> 23 Source: www.internetworldstat.com as of June 2, 2007. We group the rest of languages together. The official language of each country has been defined according to Wikipedia. Whenever a country has several official languages, we set English as the primary official language if among the choices, otherwise we choose French or the next most spoken language worldwide

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