The Role of Vicinity Linkages in the EU-MED Region for Trade Growth

FEM41-13 | April 2017


« The Role of Vicinity Linkages in the EU-MED Region for Trade Growth »


Andres Artal-Tur (University of Valencia, Spain); Vicente Pallardó-Lopez (University of Valencia, Spain) John Salevurakis (American University of Cairo, Egypt); Mona Said (American University of Cairo, Egypt)


University of Valencia, Spain; American University of Cairo, Egypt

Note :

This document has been produced with the financial assistance of the European Union within the context of the EU-FEMISE project “Support to economic research, studies and dialogue of the Euro-Mediterranean Partnership”.. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

This project explores some important aspects of the trade-migration nexus in the Euro-Med region. It focuses upon the role of historical ties and proximity issues between countries in fostering the trade effects of migrants. More specifically, the research addresses the effect of historical bilateral ties and how they ensure a higher number of social interactions between migrants and natives, increasing the size of the pro-trade effects of migrants. In this setting, the effect of other variables in shaping trade-migration linkages are explored, including the role of immigrants’ characteristics and social integration issues at destination countries.

OECD countries have been experiencing high and rising flows of migrants from different regions of the world. Specifically, 2015 has seen a stock of 125 million foreign-born people in OECD countries and it is the position of this project that flows of immigrants have a positive economic impact at host countries. Despite of the benefits of immigration, the recent notable influx of immigrants and global changes in the political environment have resulted in a more restrictive migration policy in OECD countries and a revised migration legislation.

The existing literature on the migration-trade nexus has identified two main channels through which migration affects trade, namely the preference and the network channels. The “preference” for some home-produced products results in an increase in imports for the host countries. Conversely, “networks” of immigrants promote new business opportunities by reducing transaction trade costs, improving information channels, or moderating institutional failures in business relationships. Networks are therefore able to reduce the entry costs of firms when establishing themselves in a new market or decrease the costs of commercialisation of products given the information flows provided, thus contributing to more sales in existing markets.

Two case studies are used to test for the aforementioned hypotheses, namely France (as a country of destination) and Egypt (as a country of origin). France has a stock of 7.5 million immigrants, forming approximately 12% of the population and making it one of the six top OECD destinations in 2014. France was selected for our purposes due to the existence of historical ties with countries of origin from which the majority of its immigrants originate, specifically Maghreb and EU countries. Conversely, emigrants account for roughly 4 million Egyptians living around the world. Egyptians in Arab countries account for 72% of total national stock abroad in 2013 with Western destinations accounting for 10%.

Addressing the aforementioned hypotheses, the influence of individual profiles of immigrants in shaping trade effects are studied in terms of the level of education, degree of language proficiency, and professional situation (self-employed vs. wage-earning workers). Further, we also explore the effects of social integration of immigrants at destination countries focusing on the length of stay, age of arrival, and acquisition of the citizenship. Finally, we explore the statistical interaction between the characteristics of migrants and the migration process with the proximity and historical links between countries thus seeking a deeper understanding of the features involving the trade-migration linkages.

The study shows that the stock of migrants in France has been increasing since the 1960s, with two decades of stabilization. The most recent stock of migrants has reached 7.6 million in 2013. This means that roughly 220,000 individuals entered annually during the period of analysis 2000-2013, with 51% coming from Africa, and 34% from Europe. Family reunification represents the main motivation for immigration to France.

Egypt data shows 4 million people living around the world. Egyptians living in the Arab countries mostly migrate in response to economic and material factors while migrants in Western countries seek professional development and escape from the perceived corruption and social prejudices existing in Egypt

Trade figures for France show that the main destinations of exports are EU countries with exported commodities being mostly manufactured goods. In regard to import flows, EU countries again occupy the top of the ranking as main providers together with the USA. Exports and imports to and from MENA3 countries (Algeria, Morocco, and Tunisia), show a particular share of around 1% of total exports and imports although exports have significantly grown in volume over the period of analysis.

Similar figures for Egypt between 2000 and 2013 show that export partners of Egypt have shifted towards Arab countries from an emphasis on the EU. For imports, in 2013 The UAE and Kuwait take a leading role as providers replacing Western countries. Trade flows between Egypt and Arab countries include bilateral exchanges of manufactured goods and some imports of natural resource (petroleum) based products. Trade flows with the EU, USA, Canada and the remaining commercial partners show exchanges of manufactured goods and some exports of food products.

Literature has extended the gravity equation framework by introducing the stock of migrants as an additional covariate able to increase the volume of bilateral trade. We extend the analysis by introducing some features pertaining to migrants, related to their particular profile and social integration features, and allowing them to interact with proximity. Building on an extended gravity model, the role of proximity on the trade creation effects of migrants is therefore tested.

Results for France:

Generally, the stock of migrants shows a positive effect in creating new trade flows. Moreover, results also show how historical ties of some regions with France, namely the MENA and EU countries, provide an additional pro-trade effect (higher in the case of EU countries). Results show both network and preference effects arising in the trade-migration linkage in exports and imports equations tested, showing how immigrants are able to promote new exchanges of manufactures and intra-industry trade, as well as food-related and home-based stuff from home countries of migrants. Results also show that skill endowed immigrants create more trade connections and exchanges with their home countries that low educated ones, and language proficiency is important in launching new bilateral business between home and host countries of migrants. However, social integration of people at host countries exhibit a downturn effect in facilitating new trade exchanges, as they go losing their ties with home countries. In this way, proximity and historical ties and their interactions with personal and social integration issues of immigrants seem to matter in creating additional trade flows between countries, contributing with an additional effect around 8% of total trade in France.

Results for Egypt:

In the case of Egypt the focus of the research for proximity issues splits between Western (USA, Canada) and Gulf countries as important destinations of immigrants. Results show a clear pro-trade effect of emigrants in these two sets of destinations too, but higher for the Gulf countries settlements. The case of Egypt would be reinforcing findings on the role of historical ties and proximity in promoting new trade exchanges of migrants. Personal characteristics of migrants appear to be important variables shaping trade creation, mainly level of education and duration of stay.

In sum, the present investigation continues to highlight the economic benefits of immigration. With the changing political views of migration and the changes to migration legislations in many of the OECD countries, the conclusions of this paper add a dimension to be taken into consideration. The main results show that historical ties lead to higher stocks of migrants at particular destinations and the networks of immigrants have a clear capacity of giving rise to new trade exchanges, a pivotal result for the MED region nowadays. Proximity matters, and not only geographical, but cultural, and mainly social, that allows to take advantage of networks of people in fostering new trade exchanges. The Med region offers, in this way, opportunities for understanding, cooperation, and income generation.

In policy terms, the results flag important issues. In general, immigrants show benefits to both destination and origin countries by creating new economic benefits through trade. Selective migration policies could render other economic outcomes in the trade-migration linkage. Favoring skilled immigration leads to higher income creation, language proficiency and education emerges in this respect as important integration policies for immigrants, with evident social and economic benefits for host societies. Trade effects of migrants appear to be higher in the first years of arrival, while ties with the home countries appear to weaken the most integrated the immigrant is at host societies. An interesting finding of the project is that Common Migration and Trade Policies could be considered as interdependent issues, with migration showing important economic effects for receiving and sending countries but also serving as networks for the transmission of other political and social matters to home countries. According to findings in the research, host societies also benefit from cultural interactions with migrants, enriching in this way their customs and daily lives.