Bound by Ancestors: Immigration, Credit Frictions, and Global Supply Chain Formation

Abstract

This paper shows that the ancestry composition shaped by century-long immigration to the US can explain the current structure of global supply chains. Using an instrumental variable strategy combined with a novel dataset that links firm-to-firm global supply chains with their location information and historical migration data, we find that the co-ethnic networks have a positive causal impact on global supply chain relationships between foreign countries and US counties. The positive impact not only exists in supplier-customer relationships but also extends to strategic partnerships and trade in services. The positive impact is stronger in counties in which a larger number of firms are credit constrained, and such a stronger effect becomes even more pronounced when foreign firms are located in countries with weak contract enforcement. The results suggest that co-ethnic networks serve as social collateral to overcome credit constraints and facilitate global supply chain formation.

Keywords: Immigration, Global Supply Chain, Global Value Chain, Network Formation, Co-ethnic Networks, Social Ties, Trade Credit, Credit Constraints.

JEL Classification: F14, F22, F36, F60, G30, J61, L14