Resident Networks and Firm Trade

54 Pages Posted: 18 Aug 2012

See all articles by Lauren Cohen

Lauren Cohen

Harvard Business School; National Bureau of Economic Research (NBER)

Umit Gurun

University of Texas at Dallas

Christopher J. Malloy

Harvard Business School; National Bureau of Economic Research (NBER)

Date Written: August 2012

Abstract

We demonstrate that simply by using the ethnic makeup surrounding a firm's location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade links. Firms that exploit their local networks (strategic traders) see significant increases in future sales growth and profitability, and outperform other importers and exporters by 5%-7% per year in risk-adjusted stock returns. In sum, our results document a surprisingly large impact of immigrants' economic role as conduits of information for firms in their new countries.

Suggested Citation

Cohen, Lauren and Gurun, Umit and Malloy, Christopher J., Resident Networks and Firm Trade (August 2012). NBER Working Paper No. w18312. Available at SSRN: https://ssrn.com/abstract=2131683

Lauren Cohen (Contact Author)

Harvard Business School ( email )

Rock Center 321
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HOME PAGE: http://www.people.hbs.edu/lcohen

National Bureau of Economic Research (NBER) ( email )

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Umit Gurun

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

HOME PAGE: http://www.umitgurun.com

Christopher J. Malloy

Harvard Business School ( email )

Soldiers Field Road
Baker Library 277
Boston, MA 02163
United States
617-495-4383 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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