Immigrants and trade

Much of the literature in this area concludes that migration may foster or create trade between host and home countries (see, e.g. the references found in Bryant et al., 2004). There are various ways through which this can occur. Firstly, we reviewed in Section 3.2 estimates of the impact of migration liberalisation on global GDP. Higher global income would trigger a greater demand for traded goods and services. Secondly, the presence of immigrants in a country may have trade-inducing effects. Dunlevy and Hutchinson (1999) note that immigrants throughout history have seen opportunities for trade. This may be because of cost differences, product differentiation and the migrants' tastes. High-skilled migration, in particular, tends to create well-educated diaspora who facilitate trade by helping to enforce contracts, act as intermediaries, and expand cooperation (World Bank, 2006).

The literature agrees on two main mechanisms by which migrants themselves influence trade flows between the respective home and host countries. These are immigrant preferences and a lowering of transaction costs. Firstly, if immigrant numbers from a particular area are large enough, then this may create a significant demand for goods which are unique to their home country. That is, it is believed that immigrants have a demand for home-country products. This will lead to increased imports in the host country. Secondly, transaction costs are lowered as immigrants will have knowledge of their home countries markets, business practices and laws. In some cases immigrants' home countries will have a different language to the host country. Immigrants being bilingual will lessen the communication barriers. Immigrants may also make use of their connections or networks from their home country. This reduction in transaction costs can lead to both greater exports from the host country to the immigrants' home country and imports into the host country of home country goods and services (Gould, 1994; Dunlevy and Hutchinson, 1999; Girma and Yu, 2000; Combes et al., 2003; Bryant et al., 2004).

Girma and Yu (2000) break down the reasons for a lowering of transaction costs into either individual-specific or non-individual-specific mechanisms. The individual-specific mechanisms are thought of as being 'universal', where for example transaction costs are reduced by using the individual immigrant's business or personal connections with their home country. Non-individual-specific, or 'non-universal', mechanisms reduce transaction costs for example as the immigrant brings in additional knowledge in regard to their home countries markets and cultural norms. This knowledge is of higher benefit to the host country when the home country's markets or customs are significantly different to those of the host country.

Migrants often have a social or business network in their home country which may be used in the host country. Combes et al. (2003) conduct a study in France that looks at the effect of cross-border networks on trade. Their data refer to networks across state borders in France rather than international networks. However, their findings are likely to extend to international borders. Social networks in an area are derived from the make-up of the local labour force in terms of birth place, and the business networks in terms of inter-plant connections. Combes et al. find that network effects are stronger for medium to large distances compared to shorter ones. They also find that intra-national administrative borders matter significantly in France for determining trade patterns, and the magnitude of this effect is of a similar size to that found between states in the United States (Wolf, 2000). The authors find that including social and business networks in their model helps to reduce the border effects. In addition to this, the transport costs of interregional trade fall by about 60 percent because of networks. These effects are found in almost all industries (Combes et al., 2003).

The effects that ethnic Chinese networks have on international trade have been studied by Rauch and Trindade (2002). An important characteristic is that the ethnic network provides enforcement of sanctions in the face of a weak international legal environment. For example, if an agreement is violated by a business then this business may be blacklisted, meaning that everyone in the ethnic Chinese network will cease to deal with them; this is sometimes worse than being sued. Economically, ethnic Chinese networks have a more positive impact when goods are differentiated rather than homogeneous. These networks also help bilateral trade as they have market information, matching and referral services. For example, producers may be helped in finding a distributor for their products, or a supplier of the right component. A possible substitute to these networks is to set up private intermediaries. However, the Chinese networks already exist and establishing new intermediaries would be costly.

It is clear that the impact of migrants on trade will become less when migrants become more integrated into the host economy. Their role as trade facilitators for exports to their home country will be most effective if they remain in regular contact with the home country and are aware of developments there that may influence trade. Similarly, their impact on imports from the home country will be greater, the longer they desire culturally and ethnically linked goods from 'back home'. So again a paradox arises (see also Section 3.1): while from the perspective of social policy it is highly desirable that immigrants become economically and socially integrated into the host society, the benefit of their presence in terms of trade facilitation is greater the less integrated they are.

Epstein and Gang (2006) formulate a theory that explicitly models the role that immigrant assimilation plays in international trade. In their model, competition from migrants may lower the wages of the host population so that the native born are likely to discriminate against the migrants by, for example, introducing barriers to employment. Migrants can avoid discrimination by rapid integration. However, migrants who specialise in trading with their home country benefit from the maintaining of cultural identity. Epstein and Gang argue that in such a setting it may be optimal for migrant traders to 'invest in anti-assimilation activities' in order to preserve immigrants' preferences for home country goods.

One way in which migrants can affect trade indirectly is through remittances. These will allow developing countries to import more than otherwise (World Bank, 2006). However, if there are large increases in the number of skilled immigrants in non-traded sectors of host countries, such as healthcare, this will cause the price of non-traded goods to decline relative to the price of traded goods. In this case there could be a reduction in exports from the host country to the developing countries that could offset the remittances effect on imports into the developing countries to some extent (World Bank, 2006). Bryant et al. (2004) further argue that if migrant groups become large then they may start producing home-country products in the host country. This could result in a fall in exports from the home country of certain types of goods, which could partially offset the positive income effect of the remittances.

In an interesting econometric study that tries to quantify the impact of immigrant stocks on international trade, White (2007) estimates that, for the US at least, the impact is driven by immigration from relatively low income countries. His estimates suggest that a 10 percent increase in the immigrant stock will generate a 4.7 percent increase in imports from, and a 1.5 percent increase in exports to the typical low income home country. White refers to the two main drivers as the 'transplanted home bias' effect of immigrants preferring home country products and the 'network effects' of reduced transaction costs (which may increase both exports and imports). His estimates suggest that the average low income country immigrant increases annual imports from their home country by up to US$2057 due to transplanted home bias effects and by between US$910 and US$2967 due to network effects. Perhaps of even greater interest to the destination country are that these network effects increase exports to the immigrant's home country by US$910 (White, 2007).

It is clear that export effects of immigration are smaller than import effects from the perspective of host countries. This observation of White's study has also been generally confirmed the earlier empirical literature. For example, Ching and Chen (2000) provide evidence for the case of Taiwanese migrants to Canada where the impact on Canadian imports from Taiwan was much larger than the impact on Canadian exports to Taiwan.

Bryant et al. (2004) point out a possible gap in the literature: no studies seem to have focused on the effect of migrants on the exports of services, 'even though migration could plausibly lower transaction costs for trade in services in the same way that it lowers costs for trade in goods'. Such exports of services could of course also lead to increases in temporary migration between the home and host countries. In the next section we consider a specific form of export of services, namely consumption abroad of tourism services (mode 2 of GATS).

Migration induced tourism

Tourism can be defined as being short-term in nature, that is, a person who is a tourist intends on returning to the home country within days, weeks or months. Tourists do not visit places intending to become a permanent resident, or to become employed in paid work (Williams and Hall, 2000). International tourism is also defined as the temporary movement of people for vacations, holidays, visiting family or friends and also business trips. In 2004 it is estimated that there were about 760 million international tourist arrivals worldwide. This number has more than tripled since 1970 (Freeman, 2006a). Using an analysis of nine Caribbean countries, te Velde and Nair (2006) conclude that GATS negotiations can be effective in attracting inward FDI in these tourism-driven economies.

Migration may also induce tourism flows, in part due to friendship and kinship networks. That is, migrants may attract more tourism into the host country, while they themselves may also become tourists when they return to their 'home' country to visit friends and family. Therefore, alongside inflows of migrants there is a possible tourism inflow of visiting friends or relations (Williams and Hall, 2000). This shows that there is a flow-on effect starting with the movement of people caused by trade factors, which then leads to increased tourism in the country. Thus, in the case of skilled labour, the receiving country will receive both the benefit of the labour and the tourism of friends and relations. Furthermore, Williams and Hall (2000) point out that tourism itself may also generate subsequent migration flows.

Tourism is experienced in its natural place, that is, it cannot be transferred spatially and it is sometimes time-specific. This means that the labour force in the tourism sector must be where the tourism services are consumed and may also be needed only at particular times of the year. It may not be possible for the tourism industry to rely on local labour as the scale of demand may be relatively large, and the development of tourism may be sudden. For these reasons a country may have to rely on immigrants to fill job vacancies in the tourism sector (Williams and Hall, 2000).

Migration induced exports of educational services

Apart from the flow of temporary workers between countries, an increasingly important flow is that of international students. Gera et al. (2005) note that educational services are becoming increasingly global. This has come about through the movement of students internationally and also through the collaborating efforts between tertiary institutions across national borders. In 2004, there were approximately two million international students in the world, with the largest number studying in the United States (about 573,000).

In Australia education is the third largest services export. It is believed that Australia does not differentiate itself on academic content, but rather on price, location (as an Anglo-American system which is on the edge of Asia), safety and climate (Marginson, 2007). New Zealand needs to continue to differentiate itself from the United States, the United Kingdom, Canada and also Australia in order to attract foreign students and to increase its share in the world export of education.

Education services are covered under GATS commitments. However, Larsen et al. (2002) provide a summary of issues and negotiating positions in education under GATS and note that this was one of the sectors covered by GATS for which WTO members were least likely to commit to liberalisation. The relative lack of integration of education in the GATS is evidenced at this point by only 5 of the now 150 plus WTO members having proposed commitments for higher education under the GATS. It is suggested that this trade framework was not designed to deal with higher education (Czinkota, 2006).

Nevertheless, the lack of commitments and progress under GATS has not prevented dramatic changes occurring in global education services. Sauvé (2002) argues that this is likely to continue, in part because the trade policy framework may not be the best means of tackling constraints to further internationalisation of education services. Saner and Fasel (2003) agree that the intensification of higher education has been quite independent of trade within the WTO/GATS context. They also argue that a balance needs to be achieved between 'legitimate requests for consumer protection and sovereignty rights by governments to pursue higher education' without closing market access to foreign providers.