CHARACTERISTICS OF IMMIGRANTS AND BILATERAL TRADE

This paper tests the impact of immigration on bilateral trade using Spanish data from 1995 to 2003. It also explores some possible mechanisms behind this link. It uses a gravity equation for trade augmented with an immigrant's stock variable and a set of control variables. The immigrants variable enters the estimated equation in different ways depending on immigrant relevant characteristics both individual and non individual-specific. Results show that there is a positive link between immigration and both exports and imports. We find evidence for the trade transaction cost channel but not for the preference one. The mechanisms behind this link are the information effect-immigrant's additional information about products and about social and political institutions- and the social or ethnic network effect -immigrants with a medium level of education and those related to business activities are the ones who have a positive effect on bilateral trade.