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The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable case of Spain

Author

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  • Giovanni Peri

    (UC Davis, NBER and Centro Studi Luca d’Agliano)

  • Francisco Requena

    (University of Valencia)

Abstract

There is abundant evidence that immigrants’ networks are associated with larger trade flows between countries of origin and the country (or province) where they settle. The causality of such relation and its magnitude, however, have not been proven beyond reasonable doubt. We use the simple predictions of the model by Chaney (2008) and treat networks of migrants as a device that reduces fixed bilateral trade costs. In so doing we have strong predictions on the effect of immigrants on total exports, exports by category of goods, and on the extensive and intensive margin of trade. We test these predictions using the remarkable and uneven increase of immigration to Spanish provinces between 1993 and 2008. The richness of our data, a panel of import and export by sector between 50 Spanish provinces and 77 countries over fifteen years, allows us to control for a very large set of covariates and fixed effects and to use an instrumental variable strategy so that we can isolate the trade-creation effect of new immigrants. We are also able to qualify the effect of immigration on bilateral trade of homogeneous and differentiated goods, and its impact on the intensive and extensive margin of trade. Our findings support all the implications of the Chaney model showing that migration network indeed seems to decrease the fixed costs of trade. Finally by decomposing the effect across provinces and over time we find evidence that the elasticity of trade creation to new immigrant is larger once a critical mass has been reached.

Suggested Citation

  • Giovanni Peri & Francisco Requena, 2009. "The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable case of Spain," Development Working Papers 275, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:275
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    Cited by:

    1. Giulia BETTIN & Alessia LO TURCO, 2009. "A Cross Country View On South-North Migration And Trade," Working Papers 331, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    2. Christodoulopoulou, Styliani, 2010. "THE Effects of Multilateral Trade Liberalization on the Extensive and the Intensive Margins of Trade," MPRA Paper 29169, University Library of Munich, Germany.
    3. Sanne Hiller, 2013. "Does immigrant employment matter for export sales? Evidence from Denmark," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(2), pages 369-394, June.
    4. Nathan, Max, 2011. "The long term impacts of migration in British cities: diversity, wages, employment and prices," LSE Research Online Documents on Economics 33577, London School of Economics and Political Science, LSE Library.
    5. Kadir KARAGÖZ, 2016. "Migration – trade nexus revisited: Empirical evidence from Turkish emigrants in OECD countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 127-142, Winter.
    6. Edinaldo Tebaldi, 2011. "The Determinants of High-Technology Exports: A Panel Data Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(4), pages 343-353, December.
    7. Luisa Alamá-Sabater & Maite Alguacil & Joan Serafí Bernat-Martí, 2014. "Location determinants of migrant inflows: The Spanish case?," Working Papers 2014/07, Economics Department, Universitat Jaume I, Castellón (Spain).
    8. Douglas L. Campbell, 2010. "History, Culture, and Trade: A Dynamic Gravity Approach," EERI Research Paper Series EERI_RP_2010_26, Economics and Econometrics Research Institute (EERI), Brussels.
    9. Docquier, Frédéric & Marfouk, Abdeslam & Özden, Caglar & Parsons, Christopher, 2011. "Geographic, Gender and Skill Structure of International Migration," MPRA Paper 47917, University Library of Munich, Germany.
    10. Kadir KARAGÖZ, 2016. "Migration – trade nexus revisited: Empirical evidence from Turkish emigrants in OECD countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 127-142, Winter.
    11. Seema Sangita, 2013. "The Effect of Diasporic Business Networks on International Trade Flows," Review of International Economics, Wiley Blackwell, vol. 21(2), pages 266-280, May.

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    More about this item

    Keywords

    Immigration; International Trade; Intensive and Extensive margin; Differentiated Goods;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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