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Emigrant Effects on Trade: Re-examining the Immigrant-trade Link from the Home Country Perspective

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Abstract

A voluminous literature examines the immigrant-trade link. Available studies evaluate the link largely from the host country perspective and generally indicate that immigrants exert positive influences on trade between their host and home countries. Few studies, however, explore the effects of emigrants on trade. Using data representing the stocks of emigrants from 131 home countries that resided in 110 host countries during the year 2005, we examine the immigrant/emigrant-trade link from both the home country perspective and the host country perspective. Doing so, we provide the first comprehensive estimates of pro-trade emigrant effects for each home country in our study.

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Notes

  1. A summary of this literature is provided as an Appendix.

  2. Likewise, while immigrants’ remittances may increase the home countries’ imports, these imports may come from countries other than those from which the remittances were sent.

  3. Since bilateral migration data are available only for the year 2005, we drop the time subscript from equation (2).

  4. The gravity equation was first applied trade by Tinbergen [1962]. Anderson and van Wincoop [2003], Feenstra et al. [2001], Eaton and Kortum [2002], Deardorff [1998], Davis [1995], Bergstrand [1985], Helpman and Krugman [1985] and Anderson [1979] provide theoretical foundations for the model.

  5. The bilateral migration matrix is available at http://go.worldbank.org/HO0EXUQVV0. For a detailed description of the additions/modifications made to the University of Sussex matrix, see Ratha and Shaw [2007].

  6. Internal distance, when k=j, is derived as 0.4 times the square root of the country's land mass [Head and Mayer, 2000].

  7. For example, given a Tobit model, where y i =β X X+ɛ and the dependent variable series is censored at the lower bound value of zero, we have that y i *=y i if y i >0, and y i *=0 if y i ⩽0. The McDonald-Moffitt decomposition recognizes that the expected value of y is equal to the product of the probability that the ith value of y is uncensored and the predicted value of y of those above zero; that is, E(y i *)=P(y i *>0)E(y i *∣y i *>0). Since a change in any continuous explanatory variable, χ, all else constant, produces an expected change in y of P(y i *>0)∂E(y i *∣y i *>0)/∂χ+E(y i *∣y i *>0)∂P(y i *>0)/∂χ, the expected effect on y consists of two parts: (a) the change in the expected value of y i * for those y values greater than zero, weighted by the probability the y is greater than zero, and (b) the change in the probability that y i * is greater than zero, weighted by the conditional expected value of y.

  8. Most prior studies have utilized panel data or multiple cross sections. Since our use of cross-sectional data carries a risk of endogeneity or simultaneous causation, a formal test of potential endogeneity was conducted and the results show that the immigrant stock is not endogenous to trade flows.

  9. Given the double-logarithmic functional form of the estimated equation, the coefficient can be interpreted as elasticity.

  10. While this difference in effects of immigrants on the host's imports and exports is often a perception, it is not theoretically driven to be always so. Girma and Yu [2002] and White [2007a], for example, find greater effects of immigrants on their host country exports than imports.

  11. Note that the numerical decomposition of the change in the dependent variable resulting from small incremental change in the value of the independent variable of interest is carried out at the mean of the independent variable when the variable is continues. When the variable of interest is dummy variable, however, the numerical decomposition is done for change in the value of the dummy variable from 0 (e.g., home country has access to a sea port) to 1(the home country is landlocked).

  12. Given that previous studies have examined the immigrant-trade link for various host country cohorts, we choose to focus on the home countries.

  13. Note that in estimating equation (4), while retain all variables included when estimating equation (3); however, in Table 3 we report only the coefficients of interaction terms between the immigrant stock (IM ij ) variable and the home country-specific dummy variables (HOME i ), which represent the ethnic network effects of immigrants from different home countries.

  14. Under the assumption that the year-to-year difference in the stock of emigrants is minor, we also repeat our analysis using 2006 trade data. While there are minor differences in the number of home countries in which the effect is significant, our findings from the 2005 trade and emigration data generally remains unchanged when we used the 2006 trade data as well.

  15. Although, previous host country oriented studies show that immigrants in the USA, Canada, Germany and UK have pro-trade effects on each of these host nations trade with various immigrants home countries, our study is the first to examine the effects of emigrants from these nations on their respective trade flows with other host countries.

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Authors and Affiliations

  1. University of Minnesota — Duluth, Duluth, 55812, MN, USA

    Bedassa Tadesse

  2. Franklin and Marshall College, Lancaster, PA, 17603, USA

    Roger White

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  1. Bedassa Tadesse
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APPENDIX

APPENDIX

See Table A1.

Table A1 A summary of the immigrant-trade link literature, 1994–2009
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Tadesse, B., White, R. Emigrant Effects on Trade: Re-examining the Immigrant-trade Link from the Home Country Perspective. Eastern Econ J 37, 281–302 (2011). https://doi.org/10.1057/eej.2010.47

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