THE MIGRATION-TRADE LINK: IMMIGRANTS OR EMIGRANTS?

1. THE MIGRATION-TRADE LINK: IMMIGRANTS OR EMIGRANTS? Francisco Requena Guadalupe Serrano (Universitat de Valencia)

2. Business and social network links are thought to lower the informal barriers to trade that characterize transactions in the uncertain environment of international trade. • They have a better knowledge about languaje, culture, preferences, institutions and regulations in their home and host countries. • They have information about local markets and products in both countries. SO: Possibility of lowering the transaction costs of trade and provide demand for home products. Possibility of matching buyers and sellers in both economies through their superior knowledge. How canmigrants play a relevant role in international trade? Rauch (2001),Rauch and Trindade (2002)

3. Empirical literature: finds a significant and positive relationship between migration and bilateral trade flows. • Predominantly focused on: • Developed countries as host economies (reporter countries) • Stock of immigrants living in the host economy • Little has been explored about these links when : • Developing countries are the host economies • Stock of emigrants is included in the study Murat & Pitorese (2009): Italy Erlich & Bacarreza (2007): Bolivia Tai (2009):Switzerland • We aim to investigate how the migration-trade link works considering • bilateral trade flows between different groups of countries: • (south-north trade, north-north trade, north-south trade and south-south trade) • both emigrants (living in the partner country) and immigrants (living in the reporter country)

4. Our database • COMTRADE: data on bilateral export flows in year 2005. • World Bank: data on bilateral migration stocks in year 2000. Final sample after merging & cleansing 118 reporting countries 178 trading partners.

5. List of contries. 118 reporters x 178 partners 118x118 excluding no-reporter countries 102x102 excluding also no-OECD countries and poorest reporters.

6. 2. FOUR HYPOTHESES ABOUT THE MIGRATION-TRADE LINK H1: The migration-trade link exists for both immigrants and emigrants. Country B Country A EXPORTS Immigrants in A Emmigrants from A Preferences channel Transaction Costs channel Transaction Costs channel

7. 2. FOUR HYPOTHESES ABOUT THE MIGRATION-TRADE LINK H2: The transaction costs channel is more important than the preference channel if the impact of immigration on exports is greater than the impact of emigration on trade. Country B Country A EXPORTS Immigrants in A Emmigrants from A Transction costs effect Transaction Cost effect Preferences effect + Felbermayr and Toubal (2009) find a relative small preferences effect for OECD countries

8. 2. FOUR HYPOTHESES ABOUT THE MIGRATION-TRADE LINK H3: The migration-trade link should be stronger between trading partners with large income per capita differences (as a proxy for cultural differences). Dissimilarity adds to the informal barriers to trade, and hence to the value of the information provided by migrant networks(Dunlevy, 2006; Girma and Yu, 2002). Sample splitting: North countries (GDP pc over the 80 percentile in 2000) vs. South countries Thus, the migration-trade links should be weaker for North-North trading relationships compared to: North-South, South-North and South-South

9. 2. FOUR HYPOTHESES ABOUT THE MIGRATION-TRADE LINK H4: The migration-trade link should be stronger for differentiated products than for homogenous products. Underlying presumption: Specific information about available products, characteristics, qualities, and tastes is specially relevant for trade in differentiated products, since these goods with lower substitutability (more differentiated) are more complex and price is not the only marketing variable. Thus, the pro-trade effect of migrants on differentiated products should be bigger than on homogenous products (Rauch and Trindade, 2002). Sample splitting: Highly Differentiated products: elasticity of substitution <2. (Broda & Weinstein, 2006)

10. 3. Econometric model Where X = exports IMMI =immigrants in the reporter (+) EMI =emigrants from de reporter (+) Dummy variables NID , NED =dummy variables for “0” migration flow (no effect) DIST = geodesic distance (-) LANDLOCK , ISLAND (-) Пi , Пj =origin and destination country fixed effects. CONTIG = common border (+) LANGUAJEi= common languaje (+) COLONY = colony-colonizer relationship (+) COMEX-COL =sharing colnizer (+) RTA = sharing a regional trade agreement (+)

11. Econometric model • Problems: • Firm selection bias • Zero-trade flows selection bias Helpman, Melitz and Rubinstein (2008), two step estimation procedure: HMR

12. Table 1. Baseline estimations of the world bilateral trade flows. OLS, Poisson and Two step HMR’s estimation procedures. Adequacy of the HMR method. Both emigrants and immigrants affect trade positively and significantly (H1) The H0 of equality of coefficients cannot be rejected. Then the effect of the preferences channel to promote trade is negligible (H2) Robust results to different number of trading partners.

13. Table 2. Classification of countries according to income per capita (North countries=GDPpc>80pct in 2000; South countries=GDP<80pct) Emigrants coeff. is larger than immigrants coeff. The preferences effect is relevantbut smaller than the transaction cost effects. The H0 of equality of coefficients cannot be rejected. Then the effect of the preferences channel to promote trade is negligible for developing exporter countries or North-North trade. Robust results to different number of trading partners.

14. Table 3. Differentiated vs Homogenous goods. North vs. South countries (North countries=GDPpc>80pct in 2000; South countries=GDP<80pct)

15. Table 3. Differentiated vs Homogenous goods. North vs. South countries (North countries=GDPpc>80pct in 2000; South countries=GDP<80pct)

16. Table 3. Differentiated vs Homogenous goods. North vs. South countries (North countries=GDPpc>80pct in 2000; South countries=GDP<80pct)

17. CONCLUSIONS • Both emigrants and immigrants affect trade positively and significantly. • Migrants seems to have a major impact through the transaction cost channel, while the preferences channel only appears to be relevant in exports from developed countries to developing countries. • We do not observe that the most different the countries are, the larger effect of the transaction cost channel. • We find little support for the importance of the information channel for differentited goods trade when we consider all the reporter-partner trade flows. • We find no support in favour of the information channel enhancing differentiated goods exports by groups of countries.

18. THANK YOU VERY MUCH.