Ethnic Networks, Information, and International Trade: Revisiting the Evidence

Co-ethnic networks foster trade by providing information about trading opportunities and taking advantage of mutual trust. While the economics literature usually focuses on direct ethnic links between source and host countries, sociological studies adopt a broader perspective. They emphasize the role of ethnic minorities as middlemen who organize trade between various regions in the world. Rauch and Trindade [2002] study those indirect links between ethnic Chinese in different host countries. We revisit their work, particularly focusing on the trade-cost channel. Moreover, we extend the analysis to all potential ethnic networks. Using new data on bilateral stocks of migrants from the World Bank for the year of 2000, we find that the trade creating potential of the Chinese network is dwarfed by other ethnic networks, e. g., the Polish, the Turkish, the Mexican, or the Pakistani networks. The large heterogeneity in the pro-trade effect of different networks is, among other things, explained by the share of high-skilled immigrants, the degree of ethnic fragmentation, and GDP per capita