Chapter 2: What are the Channels through Which Immigrants Affect Trade?
There are several channels through which immigrants are thought to affect trade between their host and home countries. The direct channels include a ‘preference effect’ and an ‘information bridge’ effect. Greenaway et al. (2008) suggest that this latter effect consists of separate ‘cultural bridge’ and ‘enforcement bridge’ effects. First, due to their preferences for home country products, immigrants potentially increase their host country’s imports from their home country. Second, immigrants may have the ability to act in various capacities as de facto trade intermediaries that resolve information asymmetries which contribute to higher trade-related transaction costs and, hence, that hinder trade. If so, then both the host country’s imports from and exports to the immigrants’ home countries would potentially increase. Likewise, immigrants may be connected to business and/or social networks in their host and home countries that aid in the matching of buyers and sellers and in ensuring the enforcement of informal contracts. Indirect effects include the possibility that immigrants’ consumption of home country goods exposes other host country residents to such products. Thus, there is the potential that these individuals’ preferences will be altered such that they too demand home country products. This, of course, would act to further increase the host country’s imports from the immigrants’ home countries. Additionally, immigrants often send remittances to individuals in their home countries and may also act to increase host–home country FDI flows. If remittances are allocated towards consumption, then the exports of the host country may increase as a result. Similarly,...
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