Temporary Migration and Bilateral Trade Flows

Abstract

Empirical evidence on migration and trade has established that permanent migration promotes trade. This finding has been interpreted as proof for the role of migrants in reducing trade‐related transaction costs such as contract enforcement costs or information costs. This paper contributes to improving our understanding of trade‐related transaction costs by analysing empirically whether temporary migrants, like permanent migrants, have an impact on bilateral trade flows. Temporary migrants can be expected to be less integrated in the host country than permanent migrants. At the same time, their knowledge of the home country can, on average, be expected to be more up‐to‐date. Our findings therefore give insights as to the relative importance of knowledge on the host and the home country for trade‐related transaction costs. Using a gravity approach in our empirical analysis, we find that temporary migration has a positive and significant effect on trade and that temporary migration tends to have a stronger and more significant effect on both imports and exports than permanent migration. Interestingly, the role of temporary migrants in reducing trade costs does not appear to be associated with their skills.