Decomposing the immigration-trade link using price and quantity margins: the role of education

This paper examines the immigration-trade links for OECD countries for the 2000–2015 period. By decomposing the overall effect of the presence of immigrants on the export of the hosting countries according to the methodology proposed by Hummels and Klenow (2005), we investigate if there is a migration-driven increase in the number of export relationships (extensive margin) and/or simply a growth of pre-existing export relationships (intensive margin) decomposed by an increase in quantity and price. We consider the country of origin of immigrants and their level(s) of education. Our results confirm the existence of a pro-export effect of immigrants attributable to the contribution of international networks regarding the reduction in information costs, which is especially strong for developed countries as sources of migration. However, when we look at the heterogeneous impact of different levels of immigrants’ education, we find that the pro-trade effect is due to the contribution of less- and more educated immigrants to the reduction of trade costs, while the medium educated do not spur bilateral trade significantly. We address the potential endogeneity problems by adopting an instrumental variable (IV) approach based on shift-share IV and pull-and-push factors that could induce international migration.