The Trade Creation Effect Of Immigrants: Characterising Socioeconomic Opportunities Arising From Linkages Between People’s And Goods’ Flows Inside The Mena Region

FEM34-01 | September 2012


« The Trade Creation Effect Of Immigrants: Characterising Socioeconomic Opportunities Arising From Linkages Between People's And Goods' Flows Inside The Mena Region »


Andrés Artal-Tur & Vicente Pallardó-López, Institute of International Economics (IEI-UV), University of Valencia, Spain


ARTAL-TUR Andrés IEI-University of Valencia & Technical University of Cartagena, SpainBACARIA Jordi, IUEE-Universitat Autónoma de Barcelona, SpainBOUGHZALA Mongi, Université du Tunis El Manar, TunisiaESTEVE-PÉREZ Silviano, IEI-University of Valencia, SpainGHONEIM Ahmed Farouk, Cairo University, EgyptPALLARDÓ-LOPEZ Vicente, IEI-University of Valencia, SpainPÉRIDY Nicolas, Université du Sud Toulon-Var, FranceREQUENA-SILVENTE Francisco, IEI-University of Valencia, Spain

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. 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 :

The present ?Executive Summary? synthetises all research findings included in the Technical Report of FEMISE Research Project FEM 34-01, on ?Trade creation effect of Immigrants: Characterising Socioeconomic opportunities arising from linkages between People´s and Goods´ flows inside the MENA region?, corresponding to FEMISE RESEARCH PROGRAM 2010-2011. People´s flows within the Mediterranean (MED) region constitute a quite relevant social and economic process, with net benefits for both the origin and destination countries. In 2010 more than 15 million of nationals born in the southern basin of the Mediterranean were living in EU countries, this being a very important corridor for people´s flows in the world. The rapid increase in immigrant population arising to the EU is one of the most challenging political and sociological issues of today, with salient economic consequences. Although most economic studies have focused on the effects of immigration on host-country labour markets and its welfare state, literature has also begun to focus on another relevant aspect of immigration: the link between immigrant population and bilateral trade. In fact, there is a recently growing literature arguing that immigrants can have a positive effect on bilateral trade between immigrants’ host and home countries. Along this research project, we have focused on exploring such an issue for the MED region, building on quantitative analysis.Despite the widespread extension of ICTs, information costs still play a crucial role in shaping world trade patterns. Social and business transnational networks are likely to alleviate some information failures that are limiting trade exchanges. Cross-border networks are prone to substitute for organized markets in matching international buyers and sellers. Immigrants’ ties to their home country may promote trade for at least three reasons: First, immigrants have a good knowledge of the customs, language, laws, as well as business practices in both the host and home countries. Accordingly, their presence helps bridging the information gap between sellers and buyers on both sides, hence promoting bilateral trade opportunities, and establishing lasting ties based on trust and mutually understood culture. Second, immigrant networks may provide contract enforcement through sanctions and exclusions, which substitutes for weak institutional rules and reduces trade costs. As the literature has shown, these two types of trade-enhancing effects are relevant in pushing both import and export flows between destination and home countries of immigrants through network effects. And third, immigrants bring their taste for homeland products, leading to the correspondent preference effect, which promotes imports from the home country towards the destination country. In general, studies focus on the different impact of immigration in generating new trade flows at home and abroad in order to disentangle the socioeconomic impact of trade creation effects.The first contribution in our FEM 34-01 research project explores the trade-migration linkage for the cases of Portugal, Italy and Spain as relevant cases in the MED area, given the importance that immigration flows have shown for those countries. In the recent period 2001-2010 all three countries have accumulated stocks of migrants of more than 10 million people, mainly coming from Morocco, Algeria and Tunisia, what makes our results of pivotal relevance for the EU-MED region. The investigation builds here on subnational (province level) data, this being a novelty for the MED region and providing important gains in robustness of econometric results. Estimation output shows clear trade creation effects, in both exports and imports, through the network channel for all three countries, with the preference channel appearing just slightly in imports from some geographical areas historically closer to the receiving countries of immigrants (Latin America, Western Europe, and Mediterranean countries).Empirical results show that the more distant the countries of origin and destination of immigrants are, in terms of institutions, development levels, and cultural terms, the higher the pro-trade effects of people´s networks become. The degree of differentiation of traded goods also seems to be important, with networks of immigrants promoting more trade in manufactures than in traditional primary products, as one would expect, given that this kind of products require more investment in getting the necessary information to accomplish the entrance in new markets, precisely the type of information that circulates through migrants´ networks. All these findings allows us to highlight the positive trade-enhancing effects of people´s movements within the MED region, leading to some relevant conclusions: First, MED countries do not show the highest role of their immigrants´ networks in promoting new trade flows for the EU countries. North African (NA) immigrants have an old history of arrivals to the EU space, so networks are not yet so necessary for bilaterally sharing new information about trade opportunities. We observe these effects to be of greater importance for more distant populations, such as Asian and Sub-Saharan countries. Second, notwithstanding some opportunities arise for MED-MENA immigrants´ networks in creating new trade flows in the area, particularly for manufactures and some primary products. Identified trade creation effects are pushing both imports and exports of the home and destination countries of immigrants, this being a very important output of the project, because all trade partners appear to be winners in this process. Estimated elasticities show that for those particular countries an increase of 10% in immigrants´ stocks leads to trade creation effects of 2%-3% for MED countries, and up to 6% for more distant (Asian) countries. These amounts appear to be quantitatively important, especially regarding the one of EU trade flows with such more distant areas. Taking into account the linkages revealed in this first paper, it could be anticipated that Migration and Trade EU Common Policies should be viewed as complementary tools of a shared development strategy for the MED region, where flows of people, goods, and capital, could be pushed to provide net benefits for all partners.The second contribution of the research project is focused on case studies for France and Egypt for the trade-migration linkage. The French case is of special relevance for the EU-MED region and policies, given that together with Spain and Italy comprise the bulk of immigrants´ arrivals from NA to the southern MED area. The Egyptian case is an extraordinary laboratory for pursuing empirical exercises focused on estimating if there exists a different behaviour of the trade-migration link between different partners, in this case the EU countries versus other MENA (the Gulf) countries. French results are shown to be closer to what one would expect for a developed country case study. Network effects predominate in econometric output, with some 10% additional numbers of immigrants leading to trade creation of about 2%-5%. Although the specific trade creation effect of migrants coming from MENA countries seems to be lower than those of more remote regions, the observed effect is still significant, particularly for the network channel. Results also show that the pro-trade effect of migrants is significant for imports but also for exports, and inside those flows for differentiated products, while not that high for homogenous products. As the paper explains, the lower trade effects of migration encountered for the MENA countries could be a result of the higher share of homogenous trade flows in the France-MENA trade, compared to other trade exchanges of this country, or a consequence of the lower impact of network effects between France and MENA, given the lasting tradition of arrivals from that destination. Such a result, together with those of the preceding paper supports the launch of a Free Trade Area for EU-NA countries as a necessary complement of migrants´ networks in promoting new trade flows. Networks appear to be more important for creating new trade with more distant areas, with Asian countries emerging as the main focus of this policy.In the case of Egypt, results have shown that Egyptian migrants are able to create trade with major EU receivers of people´s flows. However, the effect appears just to work for specific type of products and not with all countries. Particularly, our study revealed that migration enhances trade between Egypt and the EU through both preference and network channels, but with a predominant role of the former over the later channel, as in usual South-North studies. The type of trade enhanced by Egyptian migrants differs on the exports and imports side, where Egyptian emigrants help to enhance Egyptian homogenous and differentiated exports to the EU (clear preference channel), and European homogenous and reference-priced imports to Egypt (more closer to network effects and market opportunities in Egypt). This is an important finding for policy makers on both ends of the Mediterranean, as it concedes an important role for migrants that has been often neglected, and shows that migration currents can be also view as a tool for promoting development in both, southern and northern countries. It is also shown to be important in fostering manufactures industries, of differentiated products, in the south, another pivotal result of this part of the FEM 34-01 research project. Regarding the Gulf countries, results have shown no great trade effects of migrants´ networks of Egyptians arriving to these countries. Similarities between people in this area, in cultural and social terms, appear to be reducing trade gains derived from flows of information through MENA networks. Moreover, migration to Gulf countries is majorly temporary, so networks do not seem to play the same role than they do in the EU and other destination countries of Egyptians´ emigrants (as North America, for example).Results regarding the Tunisian case have shown the existence of preference and network effects of migrants on trade. As pointed out along the descriptive study attached in the Final Report of FEM 34-01, more than 900 000 migrants are currently living in the EU, with France being their main destination with 600 000 Tunisian working in the country. Immigrants show trade creation effects with elasticities between 29%-65% interval for imports and exports. Further in our investigation we have analysed the relationship between migration and remittances for the MENA area. In running such an exercise, we have prepared a paper on main determinants of remittance inflows to MENA countries for the period 1990-2010, with interesting results and policy recommendations emerging. Our interest here has been to focus on the role played by three sets of explanatory variables in driving remittances flows: Macroeconomic and business-cycle variables of origin and destination countries of MENA migrants, as reflecting conditions of destination countries in economic terms; institutional factors, including voice and political participation of people in MENA countries, regulatory quality, rule of law, government effectiveness and other measures developed by the World Bank; and a focus on the situation of poverty and inequality at home countries of migrants. Remittance entrances for the MENA region are of capital relevance for their population as a complementary source of income, higher in volume than FDI and Aid- related capital inflows and less affected by the shortcuts derived from the international financial crisis. Studies on the factors explaining migrants´ remittance inflows accruing to developing countries have traditionally highlighted the role that macro variables play in this process, including exchange rates, income levels at the recipient countries, or the degree of development of the financial sector. New contributions of the literature provide an interesting focus on the relationship between poverty, education and the volume of remittances entering the home countries of emigrants. In this paper we have followed a comprehensive macro approach in order to distinguish which of all these factors better explain that capital entrances. As main novelties, first we have applied panel data estimation techniques to a fully assembled data set for the countries of MENA region along the period 1990- 2010. And second, we have also introduced in a country-level setting a wide range of institutional factors as explanatory variables, testing their role in influencing remittances. Our results indicate the relevance of country level of income, education endowment of migrants, and the economic conjuncture in destination countries as main drivers of remittance inflows of MENA countries. Institutional factors seem to play a role in this process, although at a minor extent. We have also observed the existence of a positive co-variance between remittances, FDI and Aid-related capital flows arriving to the region.Abounding in our results, this part of the investigation have shown the relevance of three main factors in determining the volume of remits per capita received for every country of the MENA region: it is necessary to reach a minimum threshold of income in the country of origin of migrants in order that this collective become able to migrate; the management of education content of migrants have been also shown to be important when one wants to control entrances of remits; and third, the role of economic conjuncture at receiving countries is of pivotal relevance in influencing such capital flows, as one could easily understand. All three factors have been emerging as main drivers of per capita entrances of remittance flows in MENA countries in the last twenty years, the period when remits significantly accelerated. We have also seen how better institutions and political participation in MENA countries affect the behaviour of remitters living abroad. Another result refers to the question of social inequality, showing that remittances increase such an undesirable issue even in region like MENA characterised by relative higher levels of GDP per capita. Finally poverty issues do not seem to be well addressed from a macroeconomic approach in the remittances debate, as the literature has been also showing. We do not find conclusive results regarding the poverty variables in our empirical work, what seems to be pointing that it is better to cope with such an issue from a more detailed survey-based microeconomic research framework. Altogether, results of this part of the FEMISE project on remittances appear to be an interesting complement of the previous body of work on trade-migration relationships. Moreover, contributions of both parts of the project have lead to important policy recommendations enriching the debate on EU-MED Trade and Migration issues, as we show in the following chapters of this Technical Report of FEM 34-01 Research Project.