“The Effect of Diasporic Business Networks on International Trade and Investment Flows”

 Abstract

International migrants have unique opportunities to form business networks in their home countries and their countries of origin. Several studies have shown that migration flows increase bilateral trade and investment flows between countries. This takes place through two channels - first, the migrants have a taste for the consumption goods from their home countries and second, the migrants create networks that transmit information. The latter reflects the potential of diasporic networks in reducing information barriers and search costs in international trade. This paper disentangles the two effects in order to quantify the information effect of migration. Further, this paper addresses the issue of direction of causality between migration and trade.

The study uses a panel data set of bilateral migration stocks with origins in over 200 countries migrating into 30 OECD countries between the years 1990 and 2000. A corresponding panel data set is constructed that classifies bilateral trade data into intermediate and final goods and then sub-classifies each of these categories into homogeneous and differentiated goods. I use this data set to distinguish between the ‘taste for home goods effect’ and ‘information effect’ of migration. I show that the migrants’ role in exchange of information through business networks does lead to a significant increase in bilateral trade among countries. Moreover, I find that this effect is greatest in the trade of differentiated goods and that the highly educated migrants are most effective in business networking. Migrants also play a crucial role in the flow of foreign direct investment between different countries.

Finally, this paper constructs an instrumental variable based on citizenship laws of the countries of destination. I use this instrument to demonstrate that migration does indeed cause an increase in the flows of commodities and capital.

PAPER 2

 “The Causes of International Migration: how much can we explain (and predict) from health, demographics and geography?” (work in progress with Giovanni Peri)

 Abstract

Migration flows across countries continues to have grown in numbers but not much in terms of percentage of the world population. They have, however, changed much in terms of their countries of origin (and, in part, countries of destination). In this study we combine and compile recent migration statistics from different sources to create a database and analyze the reasons behind the shifts in migration patterns across the world. We investigate a range of push and pull factors that may contribute to migration flows across countries. We verify that the difference in income per capita between the country of destination and the country of origin plays a significant role in migration, while the geographical distance between the two countries continues to be a major deterrent. We also quantify the role played by a variety of potential push factors of migration especially, health issues, weather conditions and demographic factors. These factors are likely to affect future migration as they may be changing rapidly: health conditions are improving, weather may be worsening and average age is rapidly increasing. We focus in particular on the role played by the demographic structures prevalent in the country of origin and destination as we think that they may play a major role in future years.