The Sectoral Pro-Trade Effects of Ethnic Networks within a Ricardian Model of Trade

Abstract

This paper investigates the trade migration link within a Ricardian model` a la Eaton and Kortum (2002) and it quantifies the pro-trade effects of immigrants for 18 manufactur- ing sectors in a sample of 19 OECD countries. The results are robust across different econometric specifications and they indicate pulp, paper, paper products, printing and publishing as the sector where immigration has the greatest impact on trade. The analy- sis shows that accounting for ethnic networks in the trade share equation has important implications for the estimation of trade cost elasticity parameter across all manufacturing sectors. By following a two-step approach to estimate trade cost elasticity at sector level where q is proportional to the effect of wages on exporter fixed effects, I find that in total manufacturing q decreases by 1.03 when ethnic networks are included among the determinants of trade. This drop of trade cost elasticity approximately corresponds - on average - to a welfare gain of 4.16% of national income.