Immigrant specificity and the relationship between trade and immigration: Theory and evidence

Studies routinely document that the nature of immigrant employment is largely specific: it often concentrates in non-traded goods sectors and many immigrants often have low inter-sectoral mobility. We consider these observed characteristics of immigrant employment for the question of how immigration affects a nation's pattern of production and trade. We model an economy producing three goods; one is non-traded. Domestic labor and capital are domestically mobile but internationally immobile. Any new wave of immigration is assumed to comprise some workers who will become specific to the nontraded goods sector. The model indicates that the output and trade effects of immigration depend importantly on the sectoral pattern of employment of existing and new immigrants. Empirical investigation in a panel dataset of OECD countries supports the models prediction that immigration raises the output of non-traded goods. Consistent with the model, we also find that immigration and trade are complements. The implications of the model and empirical findings for immigration policy are then discussed.