The indirect pro-trade effects of Indian ethnic networks

Abstract

In the literature thereﾒs an established consensus on the strong and significant correlation between the stock of immigrants in the receiving country and the amount of trade with their country of origin. Surprisingly, only a few studies emphasize the role of ethnic minorities in triggering trade between various regions in the world. Rauch and Trindade (2002) was the first contribution to study those indirect links between Chinese in different host countries finding a large effect of those networks on trade. Following a similar approach, this paper studies the pro-trade effect of Indian ethnic minorities in 19 OECD countries. In particular, we investigate how the pro-trade effect of these networks varies with the quality of traded products over the period 1995-2005. Our findings show that the effect of Indian Networks is much larger than the correspondent impact of Chinese minorities. Furthermore, both these indirect effects seem to dominate the direct impact of the ethnic links between source and host countries: this result suggests that the pro-trade role of migrants in the OECD context is largely determined by the major ethnic minorities. Lastly, the indirect pro-trade effect of Indian networks is particularly strong for products of low and low-medium quality. We conjecture that this result is likely to be driven by specific information advantages of Indian Ethnic Networks over low-price commodities which follow the specialization on the low quality segment of their country of origin.