Abstract
AbstractInteractions between natives and foreign-born individuals may help to stimulate the development and the diversification of bilateral trade relationships. In fact, migrants act as trade facilitators reducing transaction costs in export activities and, consequently, more local firms are able to establish new trade relationships abroad. The pro-trade effect of migration is well evidenced in several works where the shape of the trade-migration relationship has been examined empirically; however, they all lack an analytical model that enables them to predict the expected non-linear relationship between migration and trade. Here, using statistical mechanics tools we develop a simple model that demonstrates that there is a positive non-linear relationship between the extensive margin of trade and the proportion of migrants in the total population. Data on Spanish trade and migration provide support for the predictions made by the theoretical model. The model also suggests the need of a critical mass of migrants before their interactions with the natives have any effective impact on trade. The threshold is sensitive to the nationality of the migrants, suggesting that cultural differences between natives and migrants may affect the number of migrants needed to generate a positive impact on trade. Furthermore, we examine the possible relationship between the share of migrants in the total population and the extent of diversification of the portfolio of exported goods, finding evidence of a strong positive correlation. Our approach can be used to examine other related issues such as the impact of formal or informal firm networks on trade.
Highlights
Since Gould’s (1994) pioneering paper, there has been significant growth in the number of studies examining the economics of the migration-trade nexus
Using a Herfindahl index (H-index) to quantify the inverse of product diversification of exports, we find a strong negative connection between the share of immigrants and the degree of export product concentration
While the overarching theme of this article is in the field of social sciences, the analytical tools employed come from statistical mechanics
Summary
Since Gould’s (1994) pioneering paper, there has been significant growth in the number of studies examining the economics of the migration-trade nexus (see, for example, Head and Rises, 1998; Partridge and Furtan, 2008; Hunt and Gauthier-Loiselle, 2009; Ozgen et al, 2011; Egger et al, 2012; Rashidi and Pyka, 2013). A few papers have examined empirically the shape of the trade-migration relationship. Using time-series data for the United States, Gould (1994) found that the pro-trade effect of migration disappeared when the number of migrants reached certain level. Using regional data for Spain and Italy in 2007, Serrano-Domingo and Requena-Silvente (2013) found that the migration-trade link is U-inverted, that is, when the number of migrants is too small or too large the pro-trade effect is small. The three papers derive the conclusions after searching for nonlinearities in the data. They all lack an analytical model that enables them to predict the expected non-linear relationship between migration and trade
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