Linking Migrant Networks to a Firm’s Decision to Export in a Model of Trade

In this paper I incorporate migration decisions into a model of trade that is capable of explaining the positive correlation between migrant networks and trade flows as well as replicating global migration patterns. My model enables me to simultaneously study the determinants of migration, and the trade and labour market impacts of migration on source and destination countries. Firms face large costs when exporting abroad and migrant networks are capable of reducing some of these costs to increase trade between country pairs. My framework incorporates a role for migrants to reduce the trade costs for firms to match the empirical facts between trade flows and migration. This enables me to run counterfactual experiments to uncover how much lower trade flows would become if I restricted migration. I assess the importance of this relationship by comparing welfare under the observed levels of migration to a non-migration counterfactual explicitly accounting for the impact migration will have on trade patterns. Not accounting for the effect that migrant networks have on the patterns of trade distorts the welfare impact of the non-migration counterfactual by up to 100% for some small open