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Using the Gravity Equation to Explain the Portuguese Immigration-trade Link

  • Horácio Faustino
  • Nuno Leitão

This paper tests the relation between immigration and Portuguese bilateral trade. Using a panel data analysis, the results show that the stock of immigrants has a positive effect on Portuguese exports, imports and bilateral intraindustry trade. The underlying assumption is that immigration contributes to decrease the costs of transactions, which in turn promotes trade flows. The results do not confirm the hypothesis of a negative effect of immigration on Portuguese exports. Our findings suggest that when immigrants to Portugal come from a Latin partner-country, the effects on trade are stronger than in the case of immigrants from non-Latin countries. The study is based on an extended gravitational model, in order to incorporate the qualitative factors as control variables.

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File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp122008.pdf
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Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2008/12.

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Date of creation: Mar 2008
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Handle: RePEc:ise:isegwp:wp122008
Contact details of provider: Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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  1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
  2. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  3. Sourafel Girma & Zhihao Yu, 2002. "The link between immigration and trade: Evidence from the United Kingdom," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 115-130, March.
  4. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers W95/17, Institute for Fiscal Studies.
  5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. David Greenaway & Robert Hine & Chris Milner, 1994. "Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 77-100, March.
  8. Roger White, 2007. "Immigrant-trade links, transplanted home bias and network effects," Applied Economics, Taylor & Francis Journals, vol. 39(7), pages 839-852.
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