Does immigration help to explain intra-industry trade? Evidence for Spain

Abstract

This paper argues and provides evidence that the stock of immigrants in a country has a positive effect on the share of its bilateral intra-industry trade (IIT). The paper links the literatures about immigration and trade and about IIT determinants. The key is that immigration contributes to trade transaction costs reduction and this would benefit the trade in differentiated products, i.e. IIT, more than the trade in homogeneous products, i.e. inter-industry trade. We test this hypothesis using Spanish data and departing from the models developed by Helpman. Results are robust to different IIT measures, estimation methods and specifications. © 2005 Kiel Institute for World Economics.