Abstract
Summary This paper uses Swiss immigration data and two novel instrumental variables to test the channels through which migrants promote trade. Using the immigrant stock in France as well as Swiss visa restrictions as instruments for the immigrant stock in Switzerland, I am able to exploit the cross-sectional nature of the data and identify a causal protrade effect. I find robust evidence of a protrade effect that takes place entirely on the extensive margin, i.e. on the number of exported products rather than the value of exports. This suggests migrant networks reduce beachhead costs. I also find that migrants can act as substitute for formal institutions, but not so for goods sold on organised markets. This suggests either that differentiated products are not only search- but also trust-intensive or that migrants substitute for institutions by providing information rather than trust.
Highlights
International trade flows are affected by a wide array of formal and informal barriers such as transport costs and corruption
As in Rauch and Trindade (2002), I decompose exports into homogenous goods, i.e. goods sold on organised markets such as gold, reference-priced goods, i.e. goods with prices quoted in trade publications such as chemical products, and differentiated goods, i.e. all the rest, which are information-intensive
Common border and common language do not seem to boost exports, while trade agreements seem to have a negative impact on the extensive margin, quite surprisingly
Summary
International trade flows are affected by a wide array of formal and informal barriers such as transport costs and corruption. Following the seminal work of Gould (1994), many studies found a positive correlation between migration and trade using augmented gravity models. These suggested migrant networks facilitate trade by providing product information, enforcing contracts, and via a demand for home-country products. As in Rauch and Trindade (2002), I decompose exports into homogenous goods, i.e. goods sold on organised markets such as gold, reference-priced goods, i.e. goods with prices quoted in trade publications such as chemical products, and differentiated goods, i.e. all the rest, which are information-intensive This allows me to separate the “information” and “contract-enforcement” effects
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