The migration–trade link in developing economies: a summary and extension of evidence

Over the last two decades a substantial, empirical literature has explored the links between bilateral migration and bilateral trade. Limitations on migration data have meant that the bulk of this evidence pertains only to immigrants into and trade with the OECD countries. Even within this category there is little consensus in the prior findings. This chapter adopts the recently available Global Bilateral Migration Database to explore the trade links, both with immigration and emigration, between 192 countries from 1960 to 2000, with a particular emphasis on the developing countries. Findings include positive emigrant and immigrant links with trade in all four pairings of lower-income and higher-income countries, including south-south trade. In contrast to prior findings it is estimated that the elasticity of this association increases with the level of migration over substantial ranges. The elasticity is also shown to be highest for the highly educated (at least among OECD immigrants), higher for females than males and positive for refugees who have fled from one lower-income country to another. The links prove weaker where the trade partners share a common language or colonial heritage, suggesting a role for migrants in over-coming lack of familiarity and associated incomplete information. Reduction in such barriers promotes openness to trade with a gain in efficiency, but the two-way effects offset, such that the balance of trade for lower-income countries may actually deteriorate. Network effects of third-country nationals is also explored and extended to include mutual emigration to third countries, which is estimated to result in trade diversion.