Do migration networks worsen trade deficit? Evidence from the United States and Germany

This study investigates how cross‐border movements of goods (trade), people (migration) and capital (FDI) interact comprehensively. While previous studies have examined partial interactions of these factors, such as trade–immigration relationships, little work has been done to examine the effects of global networks on trade balance. Using bilateral trade data, our dynamic panel‐data analysis provides empirical evidence of bidirectional migration networks (i.e. immigration and emigration) and business networks (i.e. inward and outward FDI). The analysis shows that the migration network effect is not definitive but varies depending on countries. The trade deficit in the United States (Germany) increases (decreases) with an increase of immigrants in these countries. For both countries, the trade deficit decreases with emigrants moving abroad. The results imply that the acceptance of immigrants is not a universal cause of trade deficit. Considering that the origin of immigrants differs between the two countries, their respective trade balance is subject to the influence of not only the number of immigrants but also the immigrants' skill level.