Immigrant’s Characteristics and its different effects on bilateral trade

Abstract

This paper tests for the impact of immigration on bilateral trade using Spanish data from 1995 to 2003. It also explores some possible mechanisms through which the stock of immigrants in a country can contribute to its trade. It uses a gravity equation for trade augmented with an immigrants stock variable and a set of control variables. The immigrants variable enters the estimated equation in different ways depending on immigrant relevant characteristics. Results show that there is a positive link between immigration and both exports and imports. We find evidence for the trade transaction cost channel but not for the preference one. We find evidence that support that the mechanisms behind this link are the information effect - additional information about product and about social and political institutions brought by immigrants - and the social o ethnic network effect - since immigrants with a medium level of education and those who are related to business activities are the one who have a positive effect on bilateral trade.International Trade, Migration