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Resident Networks and Firm Trade

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  • Lauren Cohen
  • Umit G. Gurun
  • Christopher J. Malloy

Abstract

We demonstrate that simply by using the ethnic makeup surrounding a firm’s location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade links. Firms that exploit their local networks (strategic traders) see significant increases in future sales growth and profitability, and outperform other importers and exporters by 5%-7% per year in risk-adjusted stock returns. In sum, our results document a surprisingly large impact of immigrants’ economic role as conduits of information for firms in their new countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18312.

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Date of creation: Aug 2012
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Handle: RePEc:nbr:nberwo:18312

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Cited by:
  1. Michael Good, 2012. "How Localized is the Pro-trade Effect of Immigration? Evidence from Mexico and the United States," Working Papers 1203, Florida International University, Department of Economics.

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