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

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  • Giovanni Peri

    ()
    (UC Davis, NBER and Centro Studi Luca d’Agliano)

  • Francisco Requena

    ()
    (University of Valencia)

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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Bibliographic 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
Date of revision:
Handle: RePEc:csl:devewp:275

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

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References

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Cited by:
  1. Christodoulopoulou, Styliani, 2010. "THE Effects of Multilateral Trade Liberalization on the Extensive and the Intensive Margins of Trade," MPRA Paper 29169, University Library of Munich, Germany.
  2. Campbell, Douglas L., 2010. "History, culture, and trade: a dynamic gravity approach," MPRA Paper 24014, University Library of Munich, Germany.
  3. Edinaldo Tebaldi, 2011. "The Determinants of High-Technology Exports: A Panel Data Analysis," Atlantic Economic Journal, International Atlantic Economic Society, vol. 39(4), pages 343-353, December.
  4. Nathan, Max, 2011. "The Long Term Impacts of Migration in British Cities: Diversity, Wages, Employment and Prices," MPRA Paper 29465, University Library of Munich, Germany.
  5. Luisa Alamá-Sabater & Maite Alguacil & Joan Serafí Bernat-Martí, 2014. "Location determinants of migrant inflows: The Spanish case?," Working Papers 2014/07, Economics Department, Universitat Jaume I, Castellón (Spain).
  6. Giulia BETTIN & Alessia LO TURCO, 2009. "A Cross Country View On South-North Migration And Trade," Working Papers 331, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  7. Sanne Hiller, 2013. "Does immigrant employment matter for export sales? Evidence from Denmark," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 369-394, June.

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