Migration, Production Structure and Exports

In this paper we study the effect of migration in a two-sector model where production is performed with one freely mobile factor and sector-specific CES composites of two labor services -- simple and complex tasks. Tasks' supply is provided by migrants and natives; they differ in terms of productivity in performing the different tasks. The model shows that an inflow of migrants has an effect on the production structure in favor of the sector that uses more intensively simple tasks -- like manufacturing -- in the spirit of the Rybczynski effect. Owners of the freely mobile factor gains from immigration in real and nominal terms.We take advantage of a detailed data set of migrants' work permits at the provincial level (NUTS3) in Italy to assess the effect of migrants' inflows on the production and export structure of the Italian provinces in 1995-2006. When assuming that the service sector is relatively more intensive in complex rather than simple tasks with respect to the manufacturing sector, our theoretical model is confirmed by the data. Although the investigated time span is very short, the effect is small but statistically significant: a 10% increase in the ratio of foreign-born residents to the province population induces a 0.5% increase in manufactures' value added with respect to services' value added. The same pattern is confirmed in the export structure and is much stronger -- a 10% increase in migrants' population share induces a 2.2% increase in the relative value added of low-tech exports (with respect to high-tech exports).