Does Migration Foster Exports? An African Perspective
Hélène EHRHART*, Maëlan LE GOFF♦, Emmanuel ROCHERγ, Raju Jan SINGH‡
This version: July 2012
Abstract
This paper assesses the impact of migration on export performances of 53 African countries. In particular, it highlights and helps understand in which cases the pro-trade effect of African migrants on African trade is favored. Relying on a new dataset on international bilateral migration recently released by the World Bank spanning from 1980 to 2010, we estimate a gravity model which deals satisfactorily with heteroscedasticity and zero bilateral flows issues. Our results point at a positive effect of Diaspora for exports in Africa, which is larger for African exports than the average worldwide effect and stronger when African migrants have established within Africa. These findings seem to come partly from the substitution relationship existing between migrants and institutions both in the immigrants’ source and destination countries.
JEL codes: F10 ; O15 ; O24
* Banque de France, Email: [email protected]
♦ CEPII and FERDI, Email: [email protected]
γ Banque de France, Email: [email protected]
‡ World Bank, Email: [email protected]
We thank participants to the 61st Annual Congress of the AFSE and to the 18th International Panel Data Conference for useful comments on an earlier version of this paper. The views expressed in the paper are those of the authors and do not necessarily reflect the opinions of the institutions to which they belong. I - Introduction
Standard trade literature tends to view migration and trade as substitutes. In that framework, either workers migrate to satisfy foreign demand or foreign demand is satisfied by trading goods and services. There is a growing literature, however, emphasizing that migrant networks facilitate bilateral economic transactions by diffusing their preferences towards home goods and/or by removing informational and cultural barriers between hosts and origin countries (Rauch and Casella, 2003 among others). In this case, migration would reduce transaction costs associated with trade and may be a complement rather than a substitute to trade.
In this view, African products, in particular, might suffer from large informal trade barriers due to the relatively weak legal institutions of African countries and to inadequate and few information about international trading opportunities in these countries and could thus especially benefit from the presence of migrants. Given the large increase of African migration, the number of migrants from Sub-Saharan Africa present in the OECD countries increased by nearly 80% during the 1990s (Lucas, 2006), we can wonder whether African migration is an important factor for stimulating African exports. The aim of this paper is therefore to investigate the relationship between the stock of African migrants living all over the world and the exports of African countries.
Our contribution is twofold. First, we test the pro-trade effect of migration, identified in the literature, for the case of African countries. Second, we disentangle what are the underlying explanations and in which cases the pro-trade effect of African migrants on African trade is favored. In particular, following Dunlevy (2006) and Briant et al. (2009), we examine the role played by the quality of institutions in the immigrants’ source and destination countries.
To carry out this study, we rely on a new dataset on international bilateral migration recently released by the World Bank for the years 1980, 1990, 2000 and 2010. This rich dataset is the first one with such a long time span which covers all the countries in the world. Our findings point first at a substantial positive effect of African Diaspora for African exports, which is larger than it is for the other countries in the world. This could be partly explained by the prevalence of, on average, weaker institutions in Africa, since we also find that, the weaker are the institutions of origin countries, the more migrants contribute to trade. Second, the
2 stimulating effect of African Diasporas on exports appears to be stronger when migrants have established within Africa than for those that settled outside Africa. Because migrants may substitute for low-quality institutions in host countries, they appear to promote exports more towards countries with weak institutions.
The remainder of the paper is organized as follows. Section 2 describes the patterns of African migration and exports. Section 3 reviews the literature. Section 4 presents the data and the empirical methodology and the results are discussed in Section 5. Finally, Section 6 concludes.
II-African Migration and Exports: an Overview
African Migration
Over the generations, African people have migrated in response to conflicts, environmental disasters or to demographic, economic and political constraints. In this paper we focus on international African migration, namely inter-country movements of people within the continent and movements from the continent to outward. Between 1980 and 2010, the stock of African migrants in the world has been multiplied by more than 10. According to the latest available information on bilateral migrant stocks provided by the World Bank,1 in 2010, 30.6 million African people where living in countries other than the one in which they were born (which represented about 3% of the population in Africa). In 2010, they represented 15% of the total stock of migrants in the world. In view of the significance of undocumented migration within Africa and the weak official data in many
African countries, this figure is likely to be largely underestimated.2 However, despite this substantial increase in emigration from Africa, the average migration rate in the continent remains relatively low and countries are not affected in the same way.
The gross emigration rates are particularly high in countries which have suffered from conflicts (Eritrea, Equatorial Guinea) or with small populations (Cape Verde, Sao Tome, Lesotho).
1 World Bank (2010) Migration and Factbook 2011. 2 About two-thirds of African migration are intra-continental and most of these flows are informal and not included in national official statictics.
3 As our data suggest, Egypt, Morocco, Burkina Faso, Algeria and Zimbabwe were the top 5 African emigration countries in 2010, representing respectively 12.4%, 10.5%, 4.8%, 4.2% and 3.9% of African emigrants.
Fig 1- Top 10 African emigration countries in 2010 4000000 3500000 3000000 2500000 Number of 2000000 emigrants 1500000 1000000 500000 0 EGY MAR BFA DZA ZWE MOZ CIV NGA MLI SDN
Source: Authors, based on data from World Bank 2011.
France still appears as the leading destination for emigrants from Africa (9.9% of total emigrants from Africa in 2010). It is followed by Côte d’Ivoire (8.2%), Saudi Arabia (6.5%), South Africa (5%), the United States (4.6%) and the United Kingdom (4.3%).
The data used in this paper confirm two main stylized facts of African migration: most African migrants stay within Africa rather than migrating to other regions (see Appendix 1) and their destination countries are not very diversified. However, we observe an increase of migratory movements from the continent to outward and a progressive diversification of African migrant destinations.
In 2010, 19 African countries in our sample countries sent more than three quarters of their migrants within the African continent. Almost all migrants from Swaziland, Niger and Lesotho went to other countries of the continent (respectively 97%, 97% and 99%of migrants). The most migrant-attracting countries in Africa in 2010 were Cote d’Ivoire (8.2% of intra-African migrants), South Africa (12% of intra-African migrants) and Burkina Faso (6% of intra-African migrants). This result confirms, except for Burkina Faso, the fact that intra- African migration is largely determined by wage differences across African countries
4 (Hatton and Williamson, 2003). By sending many of their migrants to Europe and the Middle East, Morocco and Egypt are exceptions. The tendency of African migrants to move within the African continent is verified all along the period studied. Note, however, that the share of African migrants who stay in Africa has decreased constantly over time (from 59% in 1980 to 51% in 2010), while the attraction exerted by Europe, the second most popular destination for African migrants, has remained stable over the period (around 28%). In addition, we observe a certain concentration in target countries of migrants. On average the first destination countries of each African country in our sample absorbed 50% of their migrants in 2010, and South Africa, for example, absorbed more than 90% of emigrants from Lesotho or Swaziland.
African Exports
Easterly and Reshef (2010) documented the recent success of African countries in enhancing dramatically their exporting capacities. Indeed, from our data we can see that the annual average rate of African export growth is increasing over time with a surge in the last decade. African exports grew annually, on average, by 2.6% in the 1980’s, by 8% in the 1990’s, and by 15% in the 2000’s. In 2010, exports from Africa were totaling 450 billion US dollars. Over the last 30 years, Southern Africa is the region that experienced the largest rate of average annual export growth, 13% by year, followed by Central and Western African countries whose exports grew yearly at 10%. The largest exporting region of Africa is North Africa, which accounts for about 40% of African exports
The destinations of African exports have been modified over time with the share of African exports to OECD countries decreasing from 86% in the 1980’s to 60% in 2010 (see Appendix 2). The level of intra-African trade is rather limited (Foroutan and Pritchett, 1993) but grew significantly, increasing by 11% every year on average over the period 1980-2010. As a result, in 2010, African countries were exporting 11% of their products within Africa.
A large share of African exports is composed of primary commodities which are homogeneous products. Indeed, in 2000, with the classification of Rauch (1999), about 60% of African exports were goods traded on organized exchanges, 20% were products with
5 reference prices and only 20% of exports can be considered as differentiated products. This pattern is especially true for African exports towards non African countries. For intra-African trade, however, the types of traded goods are slightly different with a smaller share of homogeneous traded goods and about 35% of the exports being differentiated products.
III- Review of the Literature
The importance of business and social networks in overcoming informal barriers to international trade is being increasingly recognized, both in empirical work (Gould, 1994; Belderbos and Sleuwaegen, 1998) and theoretical work (Greif, 1993; Rauch and Casella, 2003). Informal trade barriers may consist of weak international legal institutions or inadequate information about international trading opportunities. Greif (1989, 1993) has established that ethnic networks can promote international trade by providing community enforcement of sanctions that deter violations of contracts in a weak international legal environment. More recently, Rauch and Casella (2002, 2003) have emphasized that ethnic networks could also promote bilateral trade by providing information on market risks and opportunities and by supplying matching and referral services. For example, ethnic networks may help producers find the right distributors for their consumer goods or assemblers find the right suppliers for their components. Felbermayr and Toubal (2012) argued that the pro-trade effect of migrants can be due both to trade costs reduction and to additional demand for goods from their source countries. They found however that the trade cost channel is the largest for differentiated goods.
Several studies analyzed empirically the effect of immigration on bilateral trade flows focusing on a specific developed country as the host country. Gould (1994) conducted his study on the United States, Head and Ries (1998) on Canada, Murat and Pistoresi (2009) on Italy, Girma and Yu (2002) on the United Kingdom, Peri and Requena-Silvente (2010) on Spain and Briant et al. (2009) on French regions. They all found a pro-trade effect of the stock of immigrants.
Ethnic Chinese networks have also been found to considerably increase bilateral trade, especially for differentiated products (Rauch and Trindade, 2002). Conducting the same analysis, Felbermayr et al. (2011) found that the Chinese network leads to a more modest
6 amount of trade creation and that besides the Chinese network, the three most relevant networks for trade-creation are the Moroccan, the Polish and the Turkish.
Another kind of studies made use of global bilateral migration data with no focus on a specific country or ethnic network. Felbermayr and Jung (2009) considered a South-North gravity model and established a positive trade effect between southern and northern countries. Questioning the pro-trade effect of migrants, Parsons (2012) showed a positive effect of migration only for Northern exports to the South.
Further studies suggested that the impact of immigration on trade can be different according to the characteristics of migrants (Kugler and Rapoport, 2011; Felbermayr and Jung, 2009), or to those of the migrants’ country of origin, especially the quality of their institutions. While Rauch (2001) mentioned the potential role of migrants as a substitute for weak institutions, only Dunlevy (2006) and Briant et al. (2009) tested it empirically, but they focused only upon a single country and her trading partner. Dunlevy (2006) showed for example that the pro- trade effect of immigrants on the bilateral exports of the American States increases with the level of corruption of the origin country’s political system. Similarly, in the case of France, Briant et al. (2009) confirmed that the pro-trade effect of migrants is more salient when they come from a country endowed with weak institutions.
IV- Empirical Analysis
The empirical model
First, we assess the impact of African migrants on African exports and test whether the effect of migrants on exports is larger for African countries compared to the world average. To do so, we start estimating a log-log gravity model of exports augmented with the logarithm of the stock of emigrants from each country of origin as an additional control variable, as expressed below: