The Tower of Babel: Localization, translation, and international trade

Localization involves adapting products for different regions or markets. Using cross-country sales data of PC games from Steam, a global digital distribution platform, we provide the first quantitative assessment of localization’s economic impacts. The ability of a single video game to accommodate multiple languages simultaneously offers a unique opportunity to study the effects of localization on international trade. Exploiting within-game linguistic variations, we find a large positive effect of localization on trade flows in target markets. To quantify the consumer benefits of localization, we develop a multi-country model and conduct counterfactual analyses. Compared to a world with complete absence of localization, we find that existing translation efforts account for 12.10% of consumer gains on average, while universal localization for all destinations would increase consumer gains by 9.31%. We also estimate localization costs across languages, revealing substantial variation. Our findings underscore the importance of localization on international trade and consumer welfare, with implications for firms and policymakers in the digitally connected global economy.