Immigration and Trade Creation: Evidence from the Extensive and Intensive Margins

Summary

This paper examines how immigration to OECD countries shapes trade. Using data on migrants from about 180 origin countries (1995– 2023) and structural gravity estimations, it shows that migration clearly boosts trade. The main effect appears on the extensive margin, meaning that migrants help countries start trading new products or open new trade relationships. In contrast, effects on the intensive margin — trading more of the goods countries already exchange — are weaker. Migrant networks reduce information and trust barriers, making it easier for firms to export new products.

Highlights

Robust pro-trade effects of migration 
Focusing on trade between OECD countries and their trading partners, we find robust pro-trade effects of migration. Migrant networks matter most for expanding the extensive margin, enabling the exchange of new products and creating new trade relationships rather than intensifying pre-existing flows.

Strength of effect is heterogeneous 
Initial migrants provide the largest trade-creation role, and that effect declines as diasporas grow. We also find higher pro-trade effects of migration if the origin or destination country is less economically developed.

Catalyst for economic integration 
Migrant networks help to reduce information frictions and cultural barriers, enabling firms to enter new markets and diversify the range of traded products. Thus, immigration policies, including regularization programs, can indirectly foster trade by lowering the fixed costs of market entry.