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The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable case of Spain

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Author Info
Giovanni Peri () (UC Davis, NBER and Centro Studi Luca d’Agliano)
Francisco Requena () (University of Valencia)

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Abstract

There is abundant evidence that immigrants’ networks are associated with larger trade flows between countries of origin and the country (or province) where they settle. The causality of such relation and its magnitude, however, have not been proven beyond reasonable doubt. We use the simple predictions of the model by Chaney (2008) and treat networks of migrants as a device that reduces fixed bilateral trade costs. In so doing we have strong predictions on the effect of immigrants on total exports, exports by category of goods, and on the extensive and intensive margin of trade. We test these predictions using the remarkable and uneven increase of immigration to Spanish provinces between 1993 and 2008. The richness of our data, a panel of import and export by sector between 50 Spanish provinces and 77 countries over fifteen years, allows us to control for a very large set of covariates and fixed effects and to use an instrumental variable strategy so that we can isolate the trade-creation effect of new immigrants. We are also able to qualify the effect of immigration on bilateral trade of homogeneous and differentiated goods, and its impact on the intensive and extensive margin of trade. Our findings support all the implications of the Chaney model showing that migration network indeed seems to decrease the fixed costs of trade. Finally by decomposing the effect across provinces and over time we find evidence that the elasticity of trade creation to new immigrant is larger once a critical mass has been reached.

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Publisher Info
Paper provided by Centro Studi Luca d\'Agliano, University of Milano in its series Development Working Papers with number 275.

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Length: 37
Date of creation: 31 Jul 2009
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Handle: RePEc:csl:devewp:275

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Related research
Keywords: Immigration; International Trade; Intensive and Extensive margin; Differentiated Goods;

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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References listed on IDEAS
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  2. José V. Blanes & Joan A. Martín-Montaner, 2006. "Migration Flows and Intra-Industry Trade Adjustments," Working Papers 06.04, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
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  3. James A. Dunlevy, 2006. "The Influence of Corruption and Language on the Protrade Effect of Immigrants: Evidence from the American States," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 182-186, July. [Downloadable!] (restricted)
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  6. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  7. David Card & Andrei Shleifer, 2009. "Immigration and Inequality," American Economic Review, American Economic Association, vol. 99(2), pages 1-21, May. [Downloadable!]
    Other versions:
  8. Dunlevy, James A. & Hutchinson, William K., 1999. "The Impact of Immigration on American Import Trade in the Late Nineteenth and Early Twentieth Centuries," The Journal of Economic History, Cambridge University Press, vol. 59(04), pages 1043-1062, December. [Downloadable!]
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  10. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "The economic value of cultural diversity: evidence from US cities," Journal of Economic Geography, Oxford University Press, vol. 6(1), pages 9-44, January. [Downloadable!] (restricted)
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  11. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May. [Downloadable!] (restricted)
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  14. Wagner, Don & Head, Keith & Ries, John, 2002. "Immigration and the Trade of Provinces," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 507-25, December. [Downloadable!] (restricted)
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  16. Catherine Y. Co & Patricia Euzent & Thomas Martin, 2004. "The export effect of immigration into the USA," Applied Economics, Taylor and Francis Journals, vol. 36(6), pages 573-583, April. [Downloadable!] (restricted)
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  19. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  20. Anthony Briant & Pierre-Philippe Combes & Miren Lafourcade, 2009. "Product Complexity, Quality Of Institutions And The Pro-Trade Effect Of Immigrants," Working Papers halshs-00382510_v1, HAL. [Downloadable!]
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  21. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
  22. David Card, 2007. "How Immigration Affects U.S. Cities," CReAM Discussion Paper Series 0711, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
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  24. Subhayu Bandyopadhyay & Cletus C. Coughlin & Howard J. Wall, 2008. "Ethnic Networks and US Exports," Review of International Economics, Blackwell Publishing, vol. 16(1), pages 199-213, 02. [Downloadable!] (restricted)
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