The Impact of Migration on Foreign Trade: A Developing Country Approach

Latin American Journal of Economic Development, No. 6, pp. 125-146, July 2006

20 Pages Posted: 14 Dec 2006

See all articles by Laura Ehrlich

Laura Ehrlich

University of Tartu

Gustavo J. Canavire-Bacarreza

Inter-American Development Bank (IDB); IZA Institute of Labor Economics

Abstract

While the causal relationship between migration and trade has not been studied thoroughly, estimation results of gravity model approach suggest that important aspects determining trade volumes can be missed if additional factors, including migration, are not considered. The current paper aims at testing the impact of migration on foreign trade in a relatively closed small economy. We use the data of Bolivia, for the years 1990-2003. We apply gravity model, adding a migration variable to the explanatory variables. We test the impact of both, immigration and emigration on exports and imports and also on intra-industry trade. We use panel estimation including data of 30 trade partners (selected according to higher trade intensity with Bolivia). We control for the economic size and geographical location of trade partners, and for changes in terms of trade.

Previous studies show an increasing effect of immigration on both exports and imports elasticities. Some studies find larger exports elasticity compared to imports elasticity, some vice versa. We could not find any studies on emigration impact on trade. Our results show relatively similar impact of both immigration and emigration on foreign trade. Positive significant effect of immigration on exports and imports is confirmed also in Bolivia, even when the migration flows in Bolivia are not as high as in the case of most countries analyzed previously. We can conclude positive effect of migration flows also on intra-industry trade.

In the following analysis, we intend to control for the impact of trade agreements and openness of trade partners. We will also try to broaden the sample of trade partners used in the current estimation and to test the hypotheses on other developing countries.

Keywords: migration, trade, gravity model, Bolivia

JEL Classification: F22, F10, C33

Suggested Citation

Ehrlich, Laura and Canavire Bacarreza, Gustavo Javier, The Impact of Migration on Foreign Trade: A Developing Country Approach. Latin American Journal of Economic Development, No. 6, pp. 125-146, July 2006. Available at SSRN: https://ssrn.com/abstract=951611

Laura Ehrlich

University of Tartu ( email )

Ülikooli 18
Tartu 50090, 50090
Estonia

Gustavo Javier Canavire Bacarreza (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

IZA Institute of Labor Economics ( email )

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

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