High versus Low Skilled Migration, Corruption and Trade

Using immigrant stock across skill levels from 97 origin countries within the period 1991-95 and 2001-05, this paper employs a gravity econometric model to examine the effect of skilled versus unskilled immigrants on the bilateral trade of 21 OECD host country, while taking into account the home country corruption. When all home countries are considered we find that immigrants across skill groups significantly increase bilateral trade, though with increasing corruption tertiary educated immigrants have a strong pro export effect and primary educated immigrants consistently promote imports. When only non-OECD immigrant origin country is considered the significant marginal effect of immigration is only seen for imports, while the export effect disappears under the weaker institutional conditions. We find that immigrants appear to "grease the wheels" of trade when their home countries are highly corrupt, but this positive effect is only sustained when the broader institutional environment remains relatively effective. Our findings hold across different robustness checks, including the use of different corruption measures, instrumental variable (2SLS) and alternative Poisson Pseudo-Maximum Likelihood (PPML) estimation.