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Immigration and Trade in Portugal: A Static and Dynamic Panel Data Analysis

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Author Info
Horácio C. Faustino
Nuno Carlos Leitão

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Abstract

This article tests the relation between immigration and Portuguese bilateral trade, considering the fifteen European partners (EU15). Using a static and dynamic panel data analysis, the results show that the stock of immigrants has a positive effect on Portuguese exports, imports and bilateral intra-industry trade. These results suggest that immigration affects all types of trade in a positive way. The underlying assumption is that immigration contributes to decrease the costs of transactions, which in turn promotes all trade flows. The static and dynamic results do not confirm the hypothesis of a negative effect of immigration on Portuguese exports. In the static model, a 10% increase in immigration induces a 5.98 % increase in exports and a 5.55% increase in imports. The effect on the Portuguese trade balance is positive. However, the dynamic results for the export and import equations are more reliable, showing a smaller positive effect on exports. A 10% increase in bilateral immigration induces a 0.47% and 2.34% increase in exports and imports, respectively. Our findings also suggest that when immigrants to Portugal originate from a Latin partner-country, the effects on trade are stronger than in the case of immigrants from non-Latin countries. The study is based on an extended gravitational model, in order to incorporate the qualitative factors as control variables.

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Paper provided by Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon. in its series Working Papers with number 2008/31.

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Date of creation: Jul 2008
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Handle: RePEc:ise:isegwp:wp312008

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Postal: Department of Economics, School of Economics and Management (ISEG), Technical University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: http://www.iseg.utl.pt/departamentos/economia/

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Related research
Keywords: intra-industry trade; immigration; gravity model; panel data; Portugal.;

Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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    Other versions:
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  10. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May. [Downloadable!] (restricted)
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  12. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-16, May. [Downloadable!] (restricted)
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  15. José V. Blanes, 2005. "Does Immigration Help to Explain Intra-Industry Trade? Evidence for Spain," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 244-270, July. [Downloadable!] (restricted)
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  16. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
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