Rico can figure out which object his master wants even if he has never heard the word before, the researchers say.
The findings, reported in the journal Science, may not surprise many dog owners. But they are certain to re-ignite a debate over what language is and whether it is unique to humans.
Rico's abilities seem to follow a process called fast mapping, seen when young children start to learn to speak and understand language.
Fast-mapping allows a child to form quick and rough hypotheses about the meaning of a new word the first time they hear or see it.
"(Rico) lives as a pet with his owners and was reported by them to know the labels of more than 200 items, mostly children's toys and balls, which he correctly retrieved upon request," Julia Fischer of the Max-Planck Institute for Evolutionary Anthropology in Leipzig and colleagues wrote.
His owners say "Rico, wo ist der (where is the) Banane (banana)," or "BigMac" or "Panda", and the dog searches, out of sight of the owner, until he finds the object.
Fischer and colleagues set up experiments to test the dog, and are satisfied that he understands the words.
"For instance, he can be instructed to put them into a box or to bring them to a certain person," they wrote.
"Rico's 'vocabulary size' is comparable to that of language-trained apes, dolphins, sea lions and parrots."
When they put a new object into a room filled with old objects, Rico was able to fetch it seven out of 10 times, evidently figuring out that the new word must refer to the new object.
"Rico's 'vocabulary size' is comparable to that of language-trained apes, dolphins, sea lions and parrots"
Max-Planck Institute for Evolutionary Anthropology,
Four weeks later, he apparently remembered this new word about half the time. "This retrieval rate is comparable to the performance of three-year-old toddlers," they wrote.
"Undoubtedly, he is a highly motivated dog," they noted, adding that border collies are bred to respond to human commands.
But, they added, "Our results strongly support the view that a seemingly complex human linguistic skill previously described only in human children may be mediated by simpler cognitive building blocks that are also present in another species."