Immigration and International Trade: a Semiparametric Empirical Investigation

This paper examines the effect of immigration on the US trade flows. The model hypothesizes that immigration facilitates international trade with home countries by lowering transaction costs. Immigrants also demand products from their country of origin, and thus stimulate trade. Using a panel data set I estimate a dynamic, fixed-effect model. The immigrant stock, a proxy for transaction costs, enters the model non-parametrically, whereas other variables enter the model log-linearly, as implied by the gravity model of international trade. To estimate this semiparametric model, I develop a new instrumental variable estimator with desirable asymptotic properties. The results indicate that the immigration effect on imports is positive for both finished and intermediate goods, but the effect on exports is positive only for finished goods.