Which Immigrants Promote Trade with Third Party Countries?

Abstract

Immigrants have been found to promote trade with their countries of origin. This study investigates which immigrants promote trade with other (third party) countries as well as the likely channels. Geographic and linguistic proximity of immigrants’ origin countries is scrutinized. We provide evidence for the inter-ethnic spillover effect due to immigrant language skills by showing that immigrants who speak the same non-native language as residents of the trading partner country increase both exports to and imports from it, even if they hail from geographically distant countries with a different official language. The study also provides a way to distinguish the special importance of ethnic ties from language skills by showing that common native language has an additional export promotion spillover effect over and above the spoken language. Geographic proximity of immigrant origin countries to export destination is also shown to be important, as the trade-promotion effect of linguistically proximate immigrants is greatest if they are also geographically proximate. Lastly, we find a trade diversion effect of geographically and linguistically distant immigrants, but its magnitude is dwarfed by the positive trade promotion effect of the other groups.