Effects of Information Channels across Skill and Product Quality Groups : Evidence from Trade-Migration Nexus

Immigrants can foster host-country trade flows by using their information network. However, the heterogeneity in skill level and increasing diversification in terms of both origin and destination of the immigrants have added complexity to this issue. This paper examines the causal linkage between immigrant driven ethnic networks and bilateral trade across different skill groups of immigrants and quality levels of products. I extend the Eaton-Kortum (2002) model for disaggregated product qualities and incorporates ethnic network in the model to establish the theoretical framework. Using a panel dataset of 19 high-income OECD countries and 99 low-income countries over the period of 1990-2005 and a newly available export quality index, I find that higher level of human capital provides high-skilled migrants with opportunities to work in high quality export oriented industries and trigger more high quality trade than the low-skilled migrants. Low-skilled migrants also use their home country knowledge to their advantage and penetrate the low quality export-oriented industry to trigger more of low quality trade compared to their counterpart. In addition, this paper demonstrates a positive indirect effect of secondary ethnic networks of third party nature on trade, with the effect stronger for low quality products and more so through low-skilled migrants