THE IMMIGRATION EFFECTS OF TRADE PROTECTIONISM: EVIDENCE FROM OECD COUNTRIES

Abstract

In the context of the current Presidential administration’s policy to reduce imports to the US and its restrictive attitudes toward immigration, it is relevant to investigate how imports and immigration are related. Existing studies have typically analyzed the effects of immigration on imports. But we wondered if the reverse causality could be worthy of examination. Thus, this study explores the impacts of trade policy on immigration. The first part discusses whether trade policies impact immigration, and the second part delves deeper into the heterogeneous effects of trade policies on high-skilled and low-skilled immigration. A large country’s restrictive import policies increase labor demand stemming from the increased demand for import substitution. Thus, workers in the exporting countries see a strong incentive to move to importing countries. Such restrictions also affect the propensity to immigrate of high- and low-skilled workers differently. Net capital inflows increase because trade restrictions appear to decrease capital outflows to exporting countries in part by losing investors’ confidence. This increases the demand for high-skilled workers as capital complements them. Therefore, high-skilled workers are more migratory than those of low-skilled. Using a panel of 20 OECD countries for the period of 1980–2010 and an instrumental variable method, the results show that restricted trade policies increase immigration and that such policies have a stronger impact on the high-skilled immigration than those of low-skilled. A clearer understanding of the channels through which trade will be a determinant of skilled migration may assist policymakers to craft an appropriate policy environment that enhances import substitution of skill-intensive goods that would serve to discourage skilled emigration.