Immigration and International Trade: A Semiparametric Empirical Investigation

Abstract

This paper examines the effect of immigration on the US trade flows. The model hypothesizes that immigration facilitates international trade with home countries by lowering transaction costs. Immigrants also demand products from their country of origin and thus stimulate trade. Using a panel data set we estimate a dynamic semiparametric fixed-effect model. The immigrant stock, a proxy for transaction costs, enters the model non-parametrically, whereas other variables enter the model log-linearly, as implied by the gravity model of international trade. To estimate this semiparametric model, we develop a new instrumental variable estimator with desirable asymptotic properties. The results indicate that the immigration effect on imports is positive for both finished and intermediate goods, but the effect on exports is positive only for finished goods. The findings supports the hypothesis that for finished goods where country specific information is crucial for trading, immigrants have a pro trade effect for both US imports and US exports. This pro trade effect of the information and knowledge carried by the immigrants is not observed for the US exports in the intermediate goods. Immigrants also have a strong demand effect both for the consumer and intermediate imports.International trade, immigration, semiparametric dynamic panel, instrumental variable,

Linkage between emigration and export flows: The case of Bangladesh

“…In recent studies, Co et al (2004) and Mundra (2005) also document a strong pro-trade effect of immigration in the USA, with state level data and country level data, respectively. Co et al (2004) explore the export effect of immigration using state level exports to 28 immigrant source countries for a single year, while Mundra (2005) examines the effects of immigration on both components of international trade-export and imports. The later study undertakes a semi-parametric approach with the dynamic fixed effects estimation technique which shows that inbound labor migration and US's trade flows act as complements.…”

“…Thus, international migration is driven by differences in both factor endowments and technologies across countries, and trade theory does not provide unanimous picture of whether trade and immigration act as substitutes or complements (Mundra, 2005). In order overcome theoretical contradictions, empirical researches were relied on.…”

“…As a result of the rapid rise in international labor flows, research on migration related aspects drew immense attention. Empirics on international migration can be grouped into three streams of analyses: (1) determinants of international labor migration (Borjas, 1987;Clark et al 2007;Karemera et al 2000;Kim and Cohen, 2010;Lewer and Berg, 2008;Mayda, 2007;Pedersen et al 2008;Zavodny, 1999); (2) relationship between international trade and immigration (Gould, 1994;Co et al 2004;Dunlevy and Hutchinson, 1999;Lewer and Berg, 2009;Mundra, 2005); and (3) migration and development linkage (Emmanuel et al 2009;Olesen, 2002). Wong (1995) argues that international labor migration is a very special type of factor movement because it involves not just the movement of the factor but also the movement of the factor of owners.…”

“…Though not unanimous, it is apparent that there are significant interactions between trade and factor mobility. However, international trade theories lack consensus, as to whether the goods and labor flows are substitutes or complements (Mundra, 2005). Standard neo-classical trade theory treats trade and migration as substitutes.…”

Heterogeneous effect of ethnic networks on international trade of Thailand: The role of family ties and ethnic diversity

“…We advance the extant literature in four ways. First, the pro-trade effect of ethnic networks has mainly been examined in a few large, developed, English-speaking, high-immigration countries, such as the United States, Canada, and the United Kingdom (e.g., Girma & Yu, 2002;Mundra, 2005;Wagner, Head, & Ries, 2002). In this paper, we use Thailand as the unique context to examine the effect of ethnic networks on trade.…”