The Impact of Immigration on Foreign Market Access: A Panel Analysis

In this chapter, we aim to add to the literature that looks at the link between FDI, trade, and migration. In contrast to existing studies, we consider flows of capital, trade variables, and migrants across 16 destinations and 198 origin countries over 12 years (2000–2012). We distinguish between the flow of capital (FDI) and the flow of goods and services (trade). Our results show that migration is a main driver of FDI flows in our sample. We find that for a ten percent increase in migration this year, FDI flows next year will be roughly 5.7% higher. Further, the effect of migration on imports or exports is of similar magnitude. Overall, these findings support the results in the previous literature finding that migrant networks increase capital and trade flows. Further, once we deviate from a constant-elasticity model, we do not find evidence for non-constancy in the relationship between migration and FDI. The squared migration term that we include in our regression model is insignificant. This also holds for imports. However, for exports we find evidence for a non-constant elasticity. Overall, our results highlight the importance of immigration policies as a means to increase FDI and trade flows between countries.