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A comparative analysis of African and Asian migrants’ effect on trade

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Abstract

The trade creation effect of migrants is among the topics of interest of contemporary development economists. Using a 10-year interval comprehensive dataset of 136 countries for the period 1970–2000, this paper reveals African migrants promote homogeneous product exports, while Asians promote the export of manufactured and differentiated products. Unsurprisingly, however, both African and Asian migrants have a positive and significant impact on imports from the migrants’ destination countries.

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Notes

  1. If a business owner violates an agreement, he is blacklisted, which is worse than being sued because the entire community will refrain from doing business with him.

  2. Asian countries export more differentiated products, while African countries export homogeneous commodities. For example, in 2000, manufacturing exports as a percentage of total merchandise exports was 26.84% for Sub-Saharan Africa and 85.66% for the East Asia and Pacific. Similarly, high technology exports as a percentage of manufactured exports are 3.76% for Sub-Saharan Africa, while this figure is 33.25% for the EAP region (World Bank WITS UNSD COMTRADE).

  3. However, Egger et al.’s (2012) study indicates that the trade-inducing effect of migrants is strong when the first migrants from a particular origin arrive, and then declines to zero for migrant stocks greater than 4000. A discussion on the comparative difference of African and Asian migrants is provided in “Appendix”.

  4. Both the relative and absolute migration stocks of Asian migrants in developed countries are higher than that of Africa. African countries’ migration is mainly within the low-wage African countries because African migration is mainly driven by conflicts, environmental pressures and artificial borders. There is relatively less migration from low-wage African countries to high-wage regions than migration within low-wage Africa (Naudé 2010; Naudé and Bezuidenhout 2014). However, more workers from Asian countries migrate to non-OECD countries (mainly within the region) as well. The skills of Asian migrants to OECD and non-OECD countries differ. Unlike the non-OECD countries, labour migration to OECD countries is mainly highly skilled (Xing et al. 2014). Given that migration is costly, most African migrants from low-per-capita-income countries cannot travel too far (Naudé 2010). On the other hand, the absence of conflicts and relatively better per capita income in Asian economies means that Asian migration is mainly driven by the income effect.

  5. Lack of information about international trade and investment opportunities is one of the informal barriers to trade.

  6. Migration may also facilitate the formation of the types of business links that lead to foreign direct investment (FDI) project deployment in a particular location. In developing countries in particular, migrants can be the bridge that solves uncertainties related to trade and investment opportunities. Migrants also affect trade indirectly via technology and knowledge transfers.

  7. The study on the effect of the average length of stay of a migrant in the host area by Herander and Saavedra (2005) shows a positive effect on exports while its square has a negative effect.

  8. Migrants are in a privileged position to provide information about distribution networks and about demand in their home countries to host country exporters and vice versa (Rauch 1996; Greif 1993).

  9. The global bilateral migrants’ stock database is a vast collection of destination country data sources detailing migrant stock from numerous origin countries and regions. It is constructed by combining over 100 censuses and population register records (Ozden et al. 2011).

  10. For example, the EU-type supranational level of coordination of visa policy at the destination country and visa waivers depending on citizenship can influence the flow of migrants.

  11. For example, a linguistic proximity that relies more closely on the country of birth and economic conditions in the country of the last residence might also shape the incentives to migrate (Bertoli and Moraga 2016; Hanson 2010; Bertoli et al. 2011; Bertoli and Moraga 2013).

  12. The determinants of migration include origin- or destination-specific factors such as income, and other dyadic factors such as networks that are correlated with unobserved cultural proximity of the pair countries (Rauch 1999; Bertoli and Moraga 2016; Karemera et al. 2000; Pedersen et al. 2008; Kim and Cohen 2010) also determine bilateral trade between pair countries. Hence, when left uncorrected, in gravity estimations, the error term may represent unobserved heterogeneity in trade flow determinants associated with the likelihood of migration.

  13. The best option to resolve the problem of endogeneity is, of course, to construct an exogenous instrument for migration which is a potential area for future research. This is beyond the scope of this study, and hence, this research used the same method adopted in previous studies.

  14. Three reasons: (1) GDP is a function of net multilateral exports, which on average tend to be less than 5% of a country’s GDP, and its connection to gross exports is much less direct; (2) the gravity equation relates bilateral trade flows to countries’ GDPs, which are a very small share of a country’s multilateral exports; (3) previous studies indicate that the potential endogeneity of GDPs with export is insignificant (Baier and Bergstrand 2007).

  15. Anderson and Van Wincoop (2003) clarify that the omitted variable bias arises by disregarding multilateral trade resistance terms that capture the idea that trade choices are established on relative rather than absolute prices.

  16. This might possibly be due to the labour movement, and social and human capital effects offset one another. The recent literature shows that migration has labour movement (substitute trade) and social and human capital movement (enhanced trade) effects. The labour movement effect reduces trade since it could equalise wages if migration was undertaken on a massive scale. On the other hand, the social capital and human capital movement effect increase trade since they provide market information. Hence, the net impact of migration on trade thus depends on which effect has the most weight, since the two effects work together to affect trade.

  17. The regional outliers are all North African countries and Hong Kong, Macao and Brunei Darussalam.

  18. The products are classified using the Rauch Classification of Goods frequently used in international trade literature.

  19. According to Bettin and Turco (2012), the south–north migration and trade reveal that migration enhances the import of primary and final goods (preference channel), the export of differentiated goods, and low elasticity of substitution goods (information channel). However, their study shows that there is no evidence that migration influences the export of labour-intensive goods (technology channel).

  20. As the data in the WB database http://wits.worldbank.org reveals, the structure of African exports is the same today.

  21. Most of Africa’s imports are composed of manufactured products, which constitute approximately 65% of Africa’s imports (UN COMTRADE). Given that African countries have weaker industrial bases and the neoclassical trade theories, Africa’s import basket should rightly contain relatively more manufactured goods imported from regions with more developed and more complex industrial bases.

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Authors and Affiliations

  1. Deakin University, Burwood, VIC, Australia

    Samuel Admassu

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  1. Samuel Admassu
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Correspondence to Samuel Admassu.

Additional information

I am grateful to Cong Pham, Debdulal Mallick, the editor as well as the anonymous referees for their valuable comments and suggestions. I would also like to thank seminar participants at the Department of Economics of Deakin University for their useful comments and insights on the preliminary version of the paper. The usual disclaimers apply.

Appendix

Appendix

1.1 A1. List of countries

Asian Bangladesh, Brunei Darussalam, Cambodia, China, Fiji, Guinea, Hong Kong SAR, India, Indonesia, Kiribati, Macao SAR, Malaysia, Myanmar, Nepal, Pakistan, Papua New Guinea, Philippines, Samoa, Solomon Islands, Sri Lanka, Thailand, Tonga, Vanuatu and Vietnam.

African Algeria, Angola, Benin, Burkina Faso, Cabo Verde, Cameroon, Central African Republic, Congo, Cote d’Ivoire, Ethiopia, Egypt, Gabon, Gambia, Ghana, Kenya, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Niger, Nigeria, Senegal, Seychelles, Somalia, Sudan, Togo, Tanzania, Tunisia, Zambia and Zimbabwe.

ROW Argentina, Australia, Austria, Bahamas, Bahrain, Barbados, Belgium, Belize, Bermuda, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Cuba, Cyprus, Czech Republic, Denmark, Dominica, Ecuador, El Salvador, Faroe Islands, Finland, Germany, France, French Guiana, French, Polynesia, Greece, Greenland, Grenada, Guadeloupe, Guatemala, Guyana, Haiti, Honduras, Hungary, Iceland, Iran, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kuwait, Lebanon, Malta, Martinique, Mexico, Netherlands, New Caledonia, New Zealand, Nicaragua, Norway, Oman, Panama, Paraguay, Peru, Poland, Portugal, Qatar, Republic of Korea, Saint Lucia, St. Vincent and the Grenadines, Saudi Arabia, Singapore, Spain, Suriname, Sweden, Switzerland, Syria, Trinidad and Tobago, Turkey, USA, United Arab Emirates, UK, Uruguay and Venezuela.

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Admassu, S. A comparative analysis of African and Asian migrants’ effect on trade. Empir Econ 56, 2079–2092 (2019). https://doi.org/10.1007/s00181-017-1408-1

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