Aalto University

International Trade
Prof. Saara Tamminen

Current immigration flows and their

expected impact on international
trade patterns or economic
development?
Elaborated by: Elena Casari
Nicola Zoccarato
Julian Gautier

STRUCTURE OF THE ANALYSIS

INTRODUCTION
REASON OF THE CHOICE
CURRENT IMMIGRATION FLOWS ANALYSIS
EFFECTS ON INTERNATIONAL TRADE (H-O Model & Gravity
Model)
INTRA/INTER MIGRATION AND SCHENGEN
CONCLUSIONS

CURRENT IMMIGRATION FLOWS

Migration is influenced by
a combination of
economic, political and
social factors: either in a
migrants country of
origin (push factors) or in
the country of destination
(pull factors).
Largest number of
immigrants:
1)Germany (692.000)
2) UK (526.000)
3)France (332.600)
4) Italy (307.500)
5) Spain (280.800)
Source: European Parliament, 2013

WHY DO PEOPLE MOVE?

SOCIAL REASONS

PERSONAL REASONS

War

Better education system

Famine

Welfare programmes

Poverty

Employment

Lack of freedom

Entrepreneurial opportunities

PROS OF IMMIGRATION
The relative economic prosperity and political stability of the EU
are thought to have exerted a considerable pull effect on
immigrants. In destination countries, international migration
may be used as a tool to solve specific labour market shortages
Migrant workers make important contributions to the
labour market in both high- and low-skilled
occupations
Migrants contribute more in taxes and social
contributions than they receive in individual benefits
Migration contributes to incentive innovation and
economic growth

INTERNATIONAL MIGRATION:
Possible effects
MACROECONOMIC
EFFECTS
Increase of aggregate
demand and imports
Decrease of unit cost in the
export industry and relative
increase of exports

MICROECONOMIC EFFECTS
Facilitation of trade with
migrants home countries
through:
Migrants links
Migrants knowledge (Law,
institutions, language)
Migrants preference for their
own countries import good

HECKSCHER-OHLIN ANALYSIS
This model gives a weak explanation of the link migrationtrade.
WHY?
No empirical evidences
The model itself excludes migration
Factors mobility among sectors but not among countries
Long run model

INTERNATIONAL TRADE AND MIGRATION AS

SUBSTITUTES
INTERNATIONAL TRADE
(Factor Price Equalization)

Equalization of goods prices, if

theres free trade
Factor price equalize

INTERNATIONAL TRADE AND MIGRATION AS

SUBSTITUTES (2)
INTERNATIONAL MIGRATION
L increases in the Host country (where w is higher) and
decreases in the Home country (where w becomes lower)
W moves between the two countries

Migration will stop when w will be equalized in the two countries

They both reduce the wage differentials

GRAVITY MODEL
Empirical study on the link migration-trade (see Does Human
Migration Affect International Trade? A Complex-Network
Perspective Giorgio Fagiolo, Marina Mastrorillo)
The model explains the effects of migration on trade flows
through a gravity-like equation involving also country sizes and
inversely, geographical distance
Main data:

Bilateral migration matrix between 226 countries for the years

1960, 1970, 1980, 1990, 2000

Bilateral export-import matrix for the same countries and years

Other country-specific economic and geographical data

GRAVITY MODEL : Focus of the study

We use this model to study if international trade between two specific
countries is encouraged
The more they share migrants between themselves
The more central their position in the international migration
network. In this regard, we study how international trade is affected

By the number of common migration channels from third countries

By the number of non-common migration channels from third countries

(different ethnic groups)

By the number of different migration connections the two countries have

(extensive centrality)

By the number of immigrants the two countries receive from third

countries (intensive centrality)

GRAVITY MODEL: Equation

The equation used for the regression is

Where:
yij: total bilateral trade between the two countries
: constant
yi, yj: variables that control GDP and population of the two
countries
ij: geographical distance between the two countries
Zyij: variable that controls shared borders, common language and
preferential trade agreements between the two countries
Wyij: variable that controls all the migration-related variables.

GRAVITY MODEL: Results

The estimates obtained from the regression suggest that:
Bilateral migration between the two countries has a positive
and constant effect on bilateral trade
Also the two countries centrality in the international migration
network has a positive effect on bilateral trade

The positive effect is driven both by immigrants of common origins

(stronger effect) and by immigrants of non-common origins (weaker
effect)

Both extensive and intensive centrality have a positive effect on

trade, but while the second one has a statistically significant effect,
the first one does not

GRAVITY MODEL: Conclusion

Countries centrality in the international migration network
increases their possibility to share a large number of commonorigin migrants. Consequently, their consumption preferences
and information advantage may encourage trade between
countries
Even if the two countries migrants dont share their origins, they
can contribute to the creation of a more cosmopolitan
environment, which can foster international trade

INTRA EUROPEAN MIGRATION: SCHENGEN

1985 - Schengen Agreement
1990 Schengen Convention
1995 Implementation of
measures

Currently
26 countries
400 million people
4 billion square km area

Economic Benefits from Schengen

Increase market size
Facilitate community trades
Improve interaction between
members
Freedom of movement for
production capacity

INTRA EUROPEAN MIGRATION

European measures in favour of intra migration

Freedom of movement for people, goods, services and capital

Common curency

Administrative and standards Harmonization

Recognition of diplomas and certificates everywhere in Europe

High level of mobility, but low level of intra migration (< 30%)

Less important than theoretical model predicts

Relative immobility of Labour in Europe

Costs to migration

Migration costs are monetary, psychological, cultural

and inherent to uncertainty

Strong cultural and language barriers in EU

Migrant profile also determine his sensibility to specific costs

Descrimination concider a brake to migration

High gain from immobility

Heterogeneity of social protections systems

Futures Evolution
Evolution of intra European migration will depend of
policy that authorities will apply
Action to countering the erosive effect of the remaining
costs

Facilitate the opening of bank accounts in others countries,

reduce cost of telecommunication

create harmonized social services are measure that can affect

positively intra migration in Europe

Retablishment of border control

CONCLUSION
A part from H-O model, the analyzed theories state a
positive effect of immigration on international trade .
In order to implement these results, European governments
introduced measures to favor mobility among countries and
improve economic growth (Schengen).
But migration is more complex and to make it easier and
more feasible, politics should take into account other
variables.