Immigration, trade and productivity in services: Evidence from U.K. firms

Abstract

This paper explores the impact of immigrants on the imports, exports and productivity of serviceproducing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.

The role of institutions and immigrant networks in firms’ offshoring decisions

“…Our findings are in part different from those in Ottaviano et al. (2018), who find a negative effect of network at the bilateral level. That paper focuses on service trade and emphasizes that imported service tasks can be substituted by immigrants working in the firm.…”

“…Firms’ decisions regarding offshore production have been analyzed using heterogeneous firm models of trade, such as those proposed by Antras and Helpman (2004) and Ottaviano et al. (2018). In these theoretical models, the probability of engaging in offshore production is a negative function of the entry cost that the firm must pay in a destination country in order to start offshoring there 1.…”

Features of the assessment of factors influencing productivity

“…Growing productivity improves competitiveness and key macroeconomic indicators (Flachenecker, 2018). However, if "productivity increase, labour costs are reduced and it promotes the export and the creation of value added" (Ottaviano, Peri, & Wright, 2018) and there is a need for an analysis of the link between productivity and its factors. This section provides more information about productivity and identifies the key factors that determine it.…”

Immigrants Networks and Trade: Evidence From Brazil

“…Aleksynska and Peri (2014) and Ottaviano et al (2018) verified how countries similarities can affect the bilateral pro-trade effect of immigrants' network. Countries with different market and cultural aspects are the ones that immigrants can affect the most trade.…”

“…Steingress (2015) and Parsons and Vézina (2018) explore how exogenous distribution of immigrants (thanks to historical and natural events and the US refugee resettlement program) affect US states exports and imports. Ottaviano et al (2018) and Combes et al (2005) use shift-share instruments. 4 Genc et al ( 2012)…”