Immigration, Trade and Productivity in Services: Evidence from U.K. Firms

49 Pages Posted: 26 May 2015

See all articles by Gianmarco I.P. Ottaviano

Gianmarco I.P. Ottaviano

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation

Giovanni Peri

University of California, Davis - Department of Economics

Greg C Wright

University of California, Merced

Multiple version iconThere are 3 versions of this paper

Date Written: May 2015

Abstract

This paper explores the impact of immigrants on the imports, exports and productivity of service-producing firms in the U.K. Immigrants may substitute for imported intermediate inputs (offshore production) and they may impact the productivity of the firm as well as its export behavior. The first effect can be understood as the re-assignment of offshore productive tasks to immigrant workers. The second can be seen as a productivity or cost cutting effect due to immigration, and the third as the effect of immigrants on specific bilateral trade costs. We test the predictions of our model using differences in immigrant inflows across U.K. labor markets, instrumented with an enclave-based instrument that distinguishes between aggregate and bilateral immigration, as well as immigrant diversity. We find that immigrants increase overall productivity in service-producing firms, revealing a cost cutting impact on these firms. Immigrants also reduce the extent of country-specific offshoring, consistent with a reallocation of tasks and, finally, they increase country-specific exports, implying an important role in reducing communication and trade costs for services.

Suggested Citation

Ottaviano, Gianmarco I.P. and Peri, Giovanni and Wright, Greg C, Immigration, Trade and Productivity in Services: Evidence from U.K. Firms (May 2015). NBER Working Paper No. w21200. Available at SSRN: https://ssrn.com/abstract=2610497

Gianmarco I.P. Ottaviano (Contact Author)

Bocconi University - Department of Economics and Paolo Baffi Centre on Central Banking and Financial Regulation ( email )

Via Gobbi 5
Milan, 20136
Italy

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)

Greg C Wright

University of California, Merced ( email )

P.O. Box 2039
Merced, CA 95344
United States

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