The Aggregate Effects of Trade and Migration: Evidence from OECD Countries

40 Pages Posted: 11 Apr 2011

See all articles by Francesc Ortega

Francesc Ortega

City University of New York, CUNY Queens College - Department of Economics ; IZA Institute of Labor Economics

Giovanni Peri

University of California, Davis - Department of Economics

Abstract

Two large but separate bodies of literature analyze the economic effects of international trade and immigration. Given that several factors are important determinants of both trade and migration flows, the previous studies are vulnerable to a potentially serious omitted-variables bias, questioning the validity of existing estimates of the effects of trade and immigration on income. This paper provides estimates of the effects of trade and immigration on income in a unified framework. We also provide a useful decomposition of the channels at work in terms of the employment rate, the capital intensity, and total factor productivity of the receiving economy. We assemble panel data on immigration flows, output, employment and capital stocks for thirty OECD countries over the period 1980-2007. In order to identify the causal effects of trade and immigration on economic outcomes we adopt and extend the gravity-based approach in Frankel and Romer (1999). Our predictors for trade and immigration flows are based on geography and the demographic trends of each country's trade and migration partners. We find that immigration has a large, positive effect on the employment rate of the receiving country. However, it leaves income per capita unaffected because of an offsetting negative effect on TFP. In contrast, trade flows appear to increase income per capita, mainly through TFP growth, and have no impact on the employment rate. The positive employment effect of immigration is the most robust of all the effects identified in this paper.

Keywords: trade, international migration, income, geography

JEL Classification: F22, E25, J61

Suggested Citation

Ortega, Francesc and Peri, Giovanni, The Aggregate Effects of Trade and Migration: Evidence from OECD Countries. IZA Discussion Paper No. 5604. Available at SSRN: https://ssrn.com/abstract=1806405

Francesc Ortega (Contact Author)

City University of New York, CUNY Queens College - Department of Economics ( email )

65-30 Kissena Blvd
Flushing, NY 11367-1597
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Giovanni Peri

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-3033 (Phone)
530-752-9382 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
51
Abstract Views
512
rank
382,868
PlumX Metrics