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The Impact of Immigration on Trade: the Case for Sweden

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The Impact of Immigration on Trade: the Case for Sweden Södertörns Högskola | Department of Economics Master Thesis 30 credit | Economics | autumn 2011 The Impact of Immigration on Trade: the Case of Sweden By: Volha Garmaza Supervisor: Karl-Markus Modén Abstract The considerable increase in international trade and migration flows can be treated as the consequence of globalization and economic integration process during the recent years. The issue of immigration impact on trade has been studied a lot since the middle of 1990s and a significant and positive effect was found in most of the cases. This paper contributes to previous studies by investigating the impact of immigrants from 155 countries on Sweden’s exports to and imports from these countries during the period from 1980 till 2010, using an augmented gravity model. The impact of immigrants on exports and imports is studied separately by looking at the whole period results and the dynamic of changes within the period. Besides this the influence of immigrants’ home countries peculiarities (by dividing them on regions and level of development) and immigrants’ type (immigrant stock, immigrant flow and asylum seekers) is tested. To the best of my knowledge it is the first study that implements this variety of classification tests for Swedish data. The empirical results suggest that a 10 % increase in immigrant stock facilitates a 1% increase in exports to and a 0.5% increase of Sweden’s imports from the immigrants’ home countries. There is a tendency of gradual decrease of immigrants’ impact on both exports and imports within the period under consideration. According to the different classification tests the immigrants from Africa have the largest impact on Sweden’s exports, though European immigrants have the largest impact on imports; Swedish foreign born population from developed countries more facilitate trade than those who are from developing; new comers and temporary immigrants have almost the same impact on exports as the total immigrant stock, but there is even slightly negative effect on trade by asylum seekers. Key words: immigration, international trade, Sweden, gravity model. Table of Contents 1. List of Tables ............................................................................................................................. 4 2. List of Figures ........................................................................................................................... 4 3. Introduction ............................................................................................................................... 5 4. Background ............................................................................................................................... 7 5. Theory ..................................................................................................................................... 11 5.1 Theories of Migration ........................................................................................................ 11 5.2 Migration in International Trade Theories ........................................................................ 13 5.3 Why Migration May Create Some Impact on Trade ......................................................... 16 5.4 The Gravity model ............................................................................................................ 18 6. Previous Studies ...................................................................................................................... 19 7. Data ......................................................................................................................................... 23 8. Preliminary data analysis......................................................................................................... 26 9. The Model Description ............................................................................................................ 29 10. Econometric Methodology .................................................................................................... 30 11. Results ................................................................................................................................... 33 11.1 General Results ............................................................................................................... 33 11.1.1 Panel Data Results ............................................................................................... 33 11.1.2 Cross-sectional Data Estimation: Exports ........................................................... 36 11.1.3 Cross-sectional Data Estimation: Imports ........................................................... 38 11.2 Biasness Checking ........................................................................................................... 39 11.2.1 Zero Values Biasness Testing ............................................................................. 39 11.2.2 The Sample Composition Biasness Testing ........................................................ 41 11.3 Regional Classification ................................................................................................... 41 11.4 Classification According to the Level of Development .................................................. 44 11.5 Immigrant Flow and Asylum Seekers Tests .................................................................... 45 12. Conclusion ............................................................................................................................. 47 12. References ............................................................................................................................. 49 13. Appendix ............................................................................................................................... 54 3 1. List of Tables Table 1. Top ten exports, imports and immigrant supply countries. ................................................. 10 Table 2. Immigrant stock elasticity results from previous studies .................................................... 21 Table 3. List of variables and sources ............................................................................................... 25 Table 4. Mean immigrant stock, exports and imports values ............................................................ 27 Table 5. Pairwise correlations ........................................................................................................... 28 Table 6. Panel data 1980-2010 estimates of immigrant stock impact on exports and imports ......... 34 Table 7. Cross-sectional OLS estimates of immigrant stock impact on exports ............................... 36 Table 8. Cross-sectional OLS estimates of immigrant stock impact on imports .............................. 38 Table 9. Zero values biasness testing ................................................................................................ 40 Table 10. OLS and panel data estimates by continents for exports ................................................... 41 Table 11. OLS and panel data estimates by continents for imports .................................................. 43 Table 12. OLS and panel data estimates for developed and developing countries (exports) ............ 44 Table 13. OLS and panel data estimates for developed and developing countries (imports) ........... 44 Table 14. OLS and panel data estimates for immigrant flow and asylum seekers ............................ 45 Appendix A List of countries ............................................................................................................ 54 Appendix B Table 1. Countries Classification by geographic approach ........................................... 55 Appendix B Table 2. Countries Classification by the level of development .................................... 56 Appendix C Fisher Unit Root Test’s results ..................................................................................... 57 Appendix D Migration in international trade models........................................................................ 59 Appendix E Country by country exclusion results: robustness check .............................................. 61 2. List of Figures Figure 1. Number of Immigrants and Emigrants to and from Sweden 1910-2010 (immigrant flow) 7 Figure 2. Immigrants’ structure by continents in 2010 ....................................................................... 9 Figure 3. Immigrants from developed and developing countries to Sweden (immigrant stock) ........ 9 Figure 4. Exports, imports and immigrant stock growth 1980-2010, 1980=100% ........................... 28 4 3. Introduction With the process of globalization the world faces a considerable increase in international migration. So during the period from 1990 till 2010 the total number of immigrants all over the world has increased from 155.5 million to almost 214 million and is equal to 3% of the world’s population (United Nations statistics). Wars and conflicts in a home country, political persecution, family reunification and seeking of better life conditions are common reasons of migration (Ministry of Foreign Affairs Department for Migration and Asylum Policy 2001:7). Migration has numerous consequences for both donor and recipient countries, influencing several social and economic processes. One of the aspects that suppose to be influenced is bilateral trade between home and host countries. Immigrants’ strong connection with home countries, language and business peculiarity
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