Trade, Migration and Integration – Evidence and Policy Implications

Abstract

This paper takes as its point of departure the unique position recently adopted by Swedish policymakers emphasising migration as a tool to increase trade. We attempt to empirically scrutinise this position. Our results demonstrate that migrants stimulate exports, especially along the extensive product margin of trade and for differentiated products, but have no significant impact on imports. This finding suggests that for small open economies where numerous immigrants are refugees, the strategy of using migration to facilitate trade may only be effective with respect to exports. This paper also contributes to the literature on trade and migration by exploiting data on gender and age, which allow us to draw inferences on the underlying impact channels. We adopt an instrumental variable approach to address the endogeneity issue due to potential reverse causality. The pattern of results is consistent with the hypothesis that migration primarily reduces fixed trade costs resulting from information and trust friction across migrant host and source countries. Importantly, the results imply that policymakers may be able to promote trade by improving immigrants’ labour market integration instead of simply being restricted to promoting more liberal immigration policies, which is generally more controversial.

Remittances and the Effectiveness of Foreign Aid

“…Various studies address the effects of migration on international trade relations. Starting with the pioneering work of Gould (1994), Head and Ries (1998) and Rauch (2001), "evidence of a positive relationship between trade and migration has been around for almost two decades" (Hatzigeorgiou and Lodefalk, 2015). 6 This is typically attributed to the immigrants' familiarity with business conditions and market opportunities in their country of birth.…”

“…In addition to disseminating trade-related information and generating trust, immigrants are widely perceived to reduce transaction and communication costs, inter alia, through scarce language skills and access to local networks (see, e.g. Gould, 1994;Parsons, 2012;Hatzigeorgiou and Lodefalk, 2015). Likewise, it is argued that immigrants help promote private cross-border financial flows, offshoring, and foreign direct investment (FDI) by providing relevant information, reducing uncertainty and building trust (see, e.g.…”

“…In a similar vein, one might argue that immigrants help improve the effectiveness of official development aid by reducing "information and trust friction" (Hatzigeorgiou and Lodefalk, 2015). Donors could make use of the immigrants' familiarity with local conditions and specific needs for aid in their home countries (Minasyan, 2015).…”

“…However, migrants and temporary workers from strongly aid-dependent countries are often unskilled and may lack the knowledge and contacts needed for reducing transaction costs. Moreover, the dissemination of relevant information and the generation of trust tend to take place at the firm-level through employment of foreign workers and immigrants (Hatzigeorgiou and Lodefalk, 2015). A comparable transmission mechanism is largely lacking at the level of official bureaucracies administering foreign aid.…”

Do Foreign Workers Reduce Trade Barriers? Microeconomic Evidence

“…Frankel (1997, p.74) includes a dummy variable for "common language" in a gravity model and finds that countries which share a common language trade about 55% more than they would otherwise. Hatzigeorgiou and Lodefalk (2013) provide a comprehensive summary of the empirical literature on the relationship between migration and trade. 2 Of the 66 papers cited, the vast majority are at the "macro" level: that is, they measure the relationship between inter-country trade and country-level migrant stocks.…”