Immigration - Trade Nexus: the Case of the EU

Abstract

Bearing in mind the intensification of international migration flows nowadays, this study contributes to the discussion on the reciprocity of international migration flows and the links between international migration and other aspects of globalization, namely international trade in goods. The empirical findings of the study concerning immigration and trade of the EU contribute to the notion of international migration and international trade being complementary phenomena. The EU was chosen as a focus of this research, as in the last decades the region has been at the heart of immigration processes as well as policy developments. Besides, most of the previous studies on the relationship between migration and trade having been conducted on a single country basis, this study contributes to the literature by examining all the EU countries over the lengthy period of time. Regression analysis of the gravity model of trade augmented with immigration variables that encompassed the countries of EU and their trading partners for the years 2000 to 2012 showed that immigration to the EU tends to have a trade-creating effect. All the models used in this study (OLS for pooled data, OLS for panel data with fixed and random effects, Poisson Pseudo Maximum Likelihood Estimation) showed consistent results (with all the variables being statistically significant). However, PPML estimation was chosen as the least biased and more efficient estimator. According to the findings, the trade-creating effect of immigration tends to be stronger for import from a migrant-sending country to a migrant receiving country, than for the export from the receiving to the sending country. This can be explained by the combination of network and preference effects. The immigration elasticity of trade turned out to be higher for the EU-EU trade than for the EU-non-EU one. Liberalized movement of people had a bigger beneficial effect on intra-regional trade.