The impact of product quality on the pro-trade elasticity of immigrants

This paper investigates the links between product quality and the pro-trade effect of ethnic networks using a large panel on trade flows and bilateral stocks of immigrants with information for 19 OECD destination countries and 177 origin countries. In line with the approach of Rauch and Trindade (2002) we classify traded goods according to their quality level and separately estimate pro-trade elasticity of ethnic networks for each subgroup. We allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level. The pro-trade effect of immigrants increases with the quality of traded goods. We show that this trend does not depend on the relatively high concentration of differentiated products in top quality subgroups. By comparing the trend of elasticities across samples, it emerges that immigrants from highly industrialized economies are relatively more likely to be part of networks which create more business opportunities for top-quality products. In addition, given their lower liquidity constraints and advantages in human capital, we find a greater impact of high-skilled migrants consistent across all quality levels. Finally, contrary to the recent findings of Ehrhart et al. (2014) and Bratti et al. (2014), regardless the quality of traded goods as we enlarge the sample by adding immigrants from low and middle income economies we find lower pro-trade elasticities.