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Immigration, Trade and Productivity in Services: Evidence from UK Firms

Listed author(s):
  • Gianmarco I. P. Ottaviano
  • Giovanni Peri
  • Greg C. Wright

This paper explores the impact of immigrants on the imports, exports and productivity of service-producing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.

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File URL: http://cep.lse.ac.uk/pubs/download/dp1353.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1353.

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Date of creation: May 2015
Handle: RePEc:cep:cepdps:dp1353
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  17. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "The economic value of cultural diversity: evidence from US cities," Journal of Economic Geography, Oxford University Press, vol. 6(1), pages 9-44, January.
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  25. Foged, Mette & Peri, Giovanni, 2015. "Immigrants' Effect on Native Workers: New Analysis on Longitudinal Data," IZA Discussion Papers 8961, Institute for the Study of Labor (IZA).
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