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RESEARCH PRODUCT

Immigrants’ Networks, Distance, and Trade Creation Effects: An Study Employing Province-Level Data for Italy, Spain and Portugal

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Neoclassical trade theory assumed international flows of goods (commodities) to be substituting for people (factor) flows under certain circumstances. However, recent empirical evidence shows a complementary relationship between these two types of flows, with migration creating new trade exchanges. Immigrants tend to form networks across borders, reducing fixed trade costs. They also retain some preference for their home-produced goods. These two channels provide the rationale of the immigration trade-enhancing linkage. In this study we investigate that issue for the cases of Italy, Spain and Portugal, employing province-level data for the period 2002–2010. Results show that the first channel (network channel) is the most important in this case. In addition, we observe that the larger the distance between trade partners (in terms of geography, culture, income per capita, or institutions), the bigger the trade creation effect found. All these findings are relevant for prescriptions in terms of EU Common Policies of Migration and Trade.