Migration, trade and investment

Staff working paper

This paper by Ben Dolman was released 21 February 2008.

Migrants can help to build social and business networks that improve the quality of information flowing between countries and lower the costs of international trade and investment. This may particularly benefit Australia, which has a large and growing migrant population.
The patterns of trade and investment across the OECD suggest that migrant networks are important. Countries tend to trade and invest more with countries from which they have received more migrants and, at least for trade, this relationship appears to be stronger where information barriers like distance and language would otherwise more greatly inhibit trade.
This does not necessarily mean that countries with more migrants should be expected to trade and invest much more in total. This study finds that, by lowering the cost of trade between a pair of countries, migrants appear to reduce trade with other countries so that the overall effect on aggregate trade seems quite small. By contrast, there was no strong evidence that a reduction in investment with other countries accompanies the positive effect of migrants on bilateral investment.