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Migration, FDI and the Margins of Trade

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  • Maurice Kugler
  • Hillel Rapoport

Abstract

Standard neoclassical trade theory models trade, migration and FDI as substitutes in the sense that factor movements reduce the scope for trade and vice versa. This neglects the potential for migration to favor trade and FDI through a reduction in bilateral transaction costs, as emphasized by recent literature on migration and diaspora networks. This paper investigates the relationships between trade, migration and FDI in a context of firms' heterogeneity. We first present a model of exports and FDI-sales by heterogeneous firms where a (migration-induced) reduction in the fixed costs of setting up either an export or a production facility abroad results in an increase in trade (under certain conditions), FDI-sales and most importantly in the FDI-sales to trade ratio. We then test these predictions in a gravity framework using recent bilateral data on migration, trade and FDI. We find that migration – and especially skilled migration -- positively affects trade and FDI (at both the extensive and intensive margins), and more so for the latter, resulting in an increase in the FDI to trade ratio, as predicted by our model.

Suggested Citation

  • Maurice Kugler & Hillel Rapoport, 2011. "Migration, FDI and the Margins of Trade," CID Working Papers 222, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:222
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ejaz Ghani & William R. Kerr & Christopher Stanton, 2014. "Diasporas and Outsourcing: Evidence from oDesk and India," Management Science, INFORMS, vol. 60(7), pages 1677-1697, July.
    2. Chasapopoulos, Panagiotis, 2018. "The impact of international immigration and cultural diversity on economic performance, public attitudes and political outcomes in European regions," Other publications TiSEM d4a10f2a-c1a2-4edd-9887-2, Tilburg University, School of Economics and Management.
    3. Sari Pekkala Kerr & William R. Kerr & William F. Lincoln, 2015. "Firms and the Economics of Skilled Immigration," Innovation Policy and the Economy, University of Chicago Press, vol. 15(1), pages 115-152.
    4. Sari Pekkala Kerr & William Kerr & Çağlar Özden & Christopher Parsons, 2017. "High-Skilled Migration and Agglomeration," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 201-234, September.
    5. C. Fritz Foley & William R. Kerr, 2013. "Ethnic Innovation and U.S. Multinational Firm Activity," Management Science, INFORMS, vol. 59(7), pages 1529-1544, July.
    6. Hillel Rapoport, 2016. "Migration and globalization: what’s in it for developing countries?," International Journal of Manpower, Emerald Group Publishing, vol. 37(7), pages 1209-1226, October.
    7. John Horton & William R. Kerr & Christopher Stanton, 2017. "Digital Labor Markets and Global Talent Flows," NBER Chapters,in: High-Skilled Migration to the United States and its Economic Consequences, pages 71-108 National Bureau of Economic Research, Inc.
    8. repec:spr:izamig:v:6:y:2017:i:1:d:10.1186_s40176-016-0077-8 is not listed on IDEAS
    9. Sari Pekkala Kerr & William Kerr & Çağlar Özden & Christopher Parsons, 2016. "Global Talent Flows," Journal of Economic Perspectives, American Economic Association, vol. 30(4), pages 83-106, Fall.
    10. Sari Pekkala Kerr & William R. Kerr, 2018. "Global Collaborative Patents," Economic Journal, Royal Economic Society, vol. 128(612), pages 235-272, July.
    11. William R Kerr, 2018. "Heterogeneous Technology Diffusion and Ricardian Trade Patterns," World Bank Economic Review, World Bank Group, vol. 32(1), pages 163-182.
    12. Lücke, Matthias & Stöhr, Tobias, 2015. "Heterogeneous immigrants and foreign direct investment: The role of language skills," Kiel Working Papers 2009, Kiel Institute for the World Economy (IfW).
    13. Adolfo Barajas & Ralph Chami & Christian H Ebeke & Sampawende J Tapsoba, 2012. "Workers’ Remittances; An Overlooked Channel of International Business Cycle Transmission?," IMF Working Papers 12/251, International Monetary Fund.
    14. Maurice Kugler & Oren Levintal & Hillel Rapoport, 2018. "Migration and Cross-Border Financial Flows," World Bank Economic Review, World Bank Group, vol. 32(1), pages 148-162.
    15. Naudé, Wim & Siegel, Melissa & Marchand, Katrin, 2015. "Migration, Entrepreneurship and Development: A Critical Review," IZA Discussion Papers 9284, Institute of Labor Economics (IZA).
    16. Michael Good, 2013. "Geographic Proximity and the Pro-trade Effect of Migration: State-level Evidence from Mexican Migrants in the United States," 2013 Papers pgo530, Job Market Papers.
    17. Christopher Parsons & Pierre‐Louis Vézina, 2018. "Migrant Networks and Trade: The Vietnamese Boat People as a Natural Experiment," Economic Journal, Royal Economic Society, vol. 128(612), pages 210-234, July.
    18. Dany Bahar & Hillel Rapoport, 2018. "Migration, Knowledge Diffusion and the Comparative Advantage of Nations," Economic Journal, Royal Economic Society, vol. 128(612), pages 273-305, July.
    19. 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.
    20. repec:exl:25engi:v:27:y:2016:i:3:p:325-333 is not listed on IDEAS
    21. William R. Kerr, 2013. "U.S. High-Skilled Immigration, Innovation, and Entrepreneurship: Empirical Approaches and Evidence," NBER Working Papers 19377, National Bureau of Economic Research, Inc.
    22. Hélène Ehrhart & Maëlan Le Goff & Emmanuel Rocher & Raju Jan Singh, 2012. "Does Migration Foster Exports? An African Perspective," Working Papers 2012-38, CEPII research center.
    23. Matteo Fiorini & Giorgia Giovannetti & Mauro Lanati & Filippo Santi, 2018. "Asymmetric Cultural Proximity and Greenfield FDI," Development Working Papers 434, Centro Studi Luca d'Agliano, University of Milano, revised 29 Jan 2018.
    24. Sonia Plaza, 2013. "Diaspora resources and policies," Chapters,in: International Handbook on the Economics of Migration, chapter 27, pages 505-529 Edward Elgar Publishing.

    More about this item

    Keywords

    Immigration; Trade; FDI; firms' heterogeneity;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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