The Impact of Immigration on International Trade in Europe: The Case of the EU-Mediterranean-Eastern Europe Zone

Abstract

We study the impact of migration to the European Union on the volume of international trade in EU. We focus on Southern Mediterranean (such as Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Syria, Tunisia, and Turkey) and Eastern Europe (such as Albania, Bosnia and Herzegovina, Chech Republic, Romania and Moldova, Croatia, Lithuania, Latvia, and Estonia) partner countries as the migration originating countries. The specific question we address is how the stock of immigrants in the host country, diversified by originating countries, affects international trade (exports/imports). We also address how the effects differ by industry. We assemble a panel data set covering the period 1998-2010 for all EU countries. We employ panel estimation techniques to estimate an augmented gravity model of bilateral trade between countries that includes the standard ?gravity variables? such as distance, language, colonial ties, borders, etc. The key explanatory variable in our study is one measuring the number of migrants from each trading partner. This variable is interacted with a dummy variable for Southern Mediterranean Countries (MPCs) and Eastern Europe Countries (EECs) in order to separate out the effects of immigrants from MPCs and EECs. Our preliminary results indicate that the elasticity of the volume of exports with respect to the stock of immigrants is 0.05. This is consistent with the findings in previous studies about the impact of immigrants on exports. The coefficient of the interaction of the log of immigrants with the EEC dummy variable is found to be statistically insignificant. However, the coefficient of the interaction of the log of immigrants with the MPC dummy variable is statistically highly significant with a magnitude of -0.18. This suggests that although immigration has, in general, a positive effect on the export of EU countries, migration from EEC countries actually has an adverse effect. For imports, the coefficient of the log of the stock of immigrants is found to be statistically insignificant. Unlike it was the case for exports, the coefficient of the interaction of the log of immigrants with the MPC dummy variable is found to be statistically insignificant. The coefficient of the interaction of the log of immigrants with the EEC dummy variable is, however, found to be statistically highly significant with a magnitude of 0.21, suggesting a significant and positive effect on imports for immigrants from Eastern Europe Countries