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The Trade Creation Effect of Immigrants: Testing the Theory on the Remarkable Case of Spain

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Author Info
Giovanni Peri () (UC Davis, CESifo and NBER)
Francisco Requena () (Universitat de Valencia)

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Abstract

There is abundant evidence that immigrants’ networks are associated with larger trade flows between countries of origin and the country (or province) where they settle. The causality of such relation and its magnitude, however, have not been proven beyond reasonable doubt. We use the simple predictions of the model by Chaney (2008) and treat networks of migrants as a device that reduces fixed bilateral trade costs. In so doing we have strong predictions on the effect of immigrants on total exports, exports by category of goods, and on the extensive and intensive margin of trade. We test these predictions using the remarkable and uneven increase of immigration to Spanish provinces between 1993 and 2008. The richness of our data, a panel of import and export by sector between 50 Spanish provinces and 77 countries over fifteen years, allows us to control for a very large set of covariates and fixed effects and to use an instrumental variable strategy so that we can isolate the trade-creation effect of new immigrants. We are also able to qualify the effect of immigration on bilateral trade of homogeneous and differentiated goods, and its impact on the intensive and extensive margin of trade. Our findings support all the implications of the Chaney model showing that migration network indeed seems to decrease the fixed costs of trade. Finally by decomposing the effect across provinces and over time we find evidence that the elasticity of trade creation to new immigrant is larger once a critical mass has been reached.

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Paper provided by Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London in its series CReAM Discussion Paper Series with number 0915.

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Date of creation: Jun 2009
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Handle: RePEc:crm:wpaper:200915

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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  2. José V. Blanes & Joan A. Martín-Montaner, 2006. "Migration Flows and Intra-Industry Trade Adjustments," Working Papers 06.04, Universidad Pablo de Olavide, Department of Economics. [Downloadable!]
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  3. Sourafel Girma & Zhihao Yu, 2002. "The link between immigration and trade: Evidence from the United Kingdom," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 138(1), pages 115-130, March. [Downloadable!] (restricted)
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  5. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  6. David Card & Andrei Shleifer, 2009. "Immigration and Inequality," American Economic Review, American Economic Association, vol. 99(2), pages 1-21, May. [Downloadable!]
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  7. Dunlevy, James A. & Hutchinson, William K., 1999. "The Impact of Immigration on American Import Trade in the Late Nineteenth and Early Twentieth Centuries," The Journal of Economic History, Cambridge University Press, vol. 59(04), pages 1043-1062, December. [Downloadable!]
  8. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September. [Downloadable!]
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  9. Gianmarco I.P. Ottaviano & Giovanni Peri, 2006. "The economic value of cultural diversity: evidence from US cities," Journal of Economic Geography, Oxford University Press, vol. 6(1), pages 9-44, January. [Downloadable!] (restricted)
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  10. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May. [Downloadable!] (restricted)
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  12. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains from Variety," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 541-585, May. [Downloadable!] (restricted)
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  13. Wagner, Don & Head, Keith & Ries, John, 2002. "Immigration and the Trade of Provinces," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 507-25, December. [Downloadable!] (restricted)
  14. Card, David, 2001. "Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 22-64, January. [Downloadable!] (restricted)
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  15. Catherine Y. Co & Patricia Euzent & Thomas Martin, 2004. "The export effect of immigration into the USA," Applied Economics, Taylor and Francis Journals, vol. 36(6), pages 573-583, April. [Downloadable!] (restricted)
  16. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-16, May. [Downloadable!] (restricted)
  17. José V. Blanes, 2005. "Does Immigration Help to Explain Intra-Industry Trade? Evidence for Spain," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(2), pages 244-270, July. [Downloadable!] (restricted)
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  18. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November. [Downloadable!] (restricted)
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  19. Keith Head & John Ries, 1998. "Immigration and Trade Creation: Econometric Evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 47-62, February.
  20. David Card, 2007. "How Immigration Affects U.S. Cities," CReAM Discussion Paper Series 0711, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
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