Immigration and trade

Abstract

This paper investigates the relationship between intra-industry trade (IIT), horizontal IIT, vertical IIT (VIIT) and immigration flows using a gravity model for the period 1995-2008 amongst Portugal and European Union's Member States (EU-27). Using a panel data approach, the results show a positive correlation between immigration and IIT. These outcomes indicate that the immigration can reduce transaction costs between home and host country. We also consider the economic dimension which appears to exercise a positive effect on trade. Our research confirms the hypothesis that there is a negative effect of transportation costs on trade.