Assimilation and Trade: Explaining the Migration-Trade Relationship with Middle Eastern Migration to Europe and North America

Abstract

Why are immigration and trade flows positively related? While many studies have documented this complementary relationship, we cannot definitively say what factors drive this relationship. On one hand, migration leads to the formation of social networks across borders, driving down trade costs. On the other hand, immigrants may retain a preference for their native country's products, creating a local market for exports. This study examines these two competing theories by estimating the immigration-trade linkage separately for migrants moving from the Middle East and North Africa (MENA) to both Europe and North America. While these two groups originate in the same location and have similar preferences, they are quite different in terms of both income and education, with MENA migrants to North America tending to be less numerous but more educated. While the greater degree of economic assimilation for North American migrants should strengthen migrant network effects, the fact that these migrants are more culturally assimilated should weaken both network and preference effects. I find that the migration-trade link is stronger for migrants to Europe, with the strongest effect for imports. The migration-trade link is stronger for differentiated goods than for homogeneous goods, and strongest for differentiated goods imports into Europe. These results suggest that while network effects matter, immigrant preferences for native country goods are the key factor driving the migration-trade link. The results in this study also provide quantitative evidence of weaker assimilation among MENA migrants to Europe, a widely accepted result that has had little empirical support in the existing literature.