Immigration Impact On International Trade

Submitted By orangealicia
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Pages: 16

A Literature Review:
Immigration Impact on International Trade

The controversy of whether the relationship between labor migration and trade is complementary or alternative has always existed. According to Heckscher`s theory, labor migration weakens the comparative advantage of countries with labor intensity, so the relationship would be alternative. However, many economists have pointed out that in the international trade environment which a contract is not fully enforceable, and product information is always inadequate, the relationship between buyers and sellers becomes very important. Therefore, analysis of immigrants` impact on the international trade should be done with reasonably comprehensive researches.

1. The role of the immigrant community Because immigrants physically live in one place while they are positively connected with their hometown, the tie between two regions is likely to promote business trade for two places. This immigration effect can be analyzed from three angles: reduced information search and costs, contract fulfillment and business trust maintain, as well as preferences spread. In the first aspect, the information barriers or language barriers slow down the speed for immigrants getting to know product-related information while local producers are having a hard time in finding out their consumer preferences. These phenomenons have increased transaction costs and lead to higher product prices, resulting in a negative impact on trade flows. Portes and Rey pointed out that, compared to domestic trade, lack of information will affect international trade opportunities to a greater extent, and international trade requires more “deep knowledge”. (Portes&Rey, 1999) The arrival of immigrants brings that information. Like Rauch believes, immigrants analyzes buyers` characteristics in both their home country and the country they are moving to, and they bring these indicates to the migration country. (Rauch, 1999) Still, the network of immigrants improves the quality of business information search. The degree of mutual trust among participants is relatively high, due to reasons like historical, cultural and linguistic, and participants within the network have a better chance to find potential and effective collaborators. Borgatti and Cross proposed four perspectives. First, the more frequent actor 1 requires information from actor 2, the more clear view actor 1 would have in terms of actor 2`s specialties and skills. Second, the presence of immigrants and immigration networks, from the perspective of information, greatly increases the diversity and possibility of information sources, as well as reduces the cost of information selecting. In other words, language constitutes an important aspect of immigration to facilitate international trade, and especially when the languages in two country are significantly different, immigrants` unique language skills become an advantage. In Dunlevy`s research of immigrants in the U.S., he pointed out that for immigrants who speak English or Spanish as a native language, they do not have a clear advantage compared to native-born Americans, although they still promote international trade in way, their influences are much less than those speak a particular different language.(Dunlevy, 2004)
In the second aspect, Gould and Rauch theoretically analyzed how exchanging knowledge between trading partners reduces commercial opportunism, and the role networks play as a replacement of contract fulfillment. As the number of transactions and the speed of information flow among members in the network constantly grows, the effect of reputation within the network is likely to be amplified. (Gould&Rauch, 2001) For example, the Chinese immigrants community normally does trade through two mechanisms, which are formal or informal business contract or group supervision.(Rauch&Trindade, 2002) Meanwhile, when researching the role overseas Chinese play in