Immigrant-trade links, transplanted home bias and network effects

Abstract

Macro-level data for the US and 73 trading partners spanning the years 1980 to 2001 is used with a gravity specification to investigate the influence of immigration on bilateral trade. Prior research has identified immigrant stocks as a significant determinant of trade; however, this study indicates that the US immigrant-trade link is driven by immigration from relatively low income countries. A 10% increase in the immigrant stock is found to generate respectively 4.7 and 1.5% increases in domestic imports from and exports to the typical low income home country. The observed link is decomposed into two hypothesized channels–network effects and transplanted home bias. Considerable variation in per-immigrant trade effects is found across home countries: imports from the typical low income home country are estimated to increase by up to $2057 due to transplanted home bias and by as much as $2967 as a result of network effects, while exports rise by up to $910 as a result of networks.