A Threshold Model for the Migration-Trade Link

How are immigration and trade related? The existing literature has found a positive effect of migration on trade, with migration working through both network and preference channels to increase international trade. I extend this analysis by examining this relationship across different levels of both migration and economic development. Migration from poor countries has a larger effect on trade than that from rich countries, reflecting the weaker trading institutions in poor countries that migrant networks may replace. For poor country migration, the marginal impact of migration is largest at high levels of migration. For rich country migration, this marginal effect declines as migration increases, suggesting that local production may be replacing native country exports. Sample splits are endogenized using Hansen's (2000) technique and greater support is found for a regime change across income levels. These results are relevant from both an academic and policy perspective as they suggest that the existing literature has underestimated the impact of poor country migration on trade, a key result when discussing migration policy