How migrant networks boost trade
Evidence from the Vietnamese boat people suggests that massive immigration by those escaping conflict leads to increased economic activity
Millions of refugees are being forcibly displaced from war zones and failed states and most rich countries prefer to keep them out as opposed to hosting them. This is a humanitarian disaster and an epic failure to learn from the past about the effect of refugee waves. As Philippe Legrain writes in his 2016 report, ‘Refugees Work: A Humanitarian Dividend That Yields Economic Dividends, refugees are an investment that yield economic dividends. Refugees bring complementary skills that make firms more productive, create businesses and pay taxes.
More than just skills, refugees also boost exports, focusing on the case of the Vietnamese boat people.
Economists have posited for years that immigrants foster international trade by reducing trade costs, mostly those associated with information and bureaucratic friction. Immigrants may lower such frictions through their knowledge of their home country’s language, regulations, market opportunities and informal institutions.
So too are immigrants understood to decrease the costs of negotiating and enforcing contracts by drawing upon their trusted networks, thereby deterring opportunistic behaviour in weak institutional environments (Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows, Gould 1994; Ethnic Chinese Networks in International Trade, Rauch and Trindade 2002; The Influence of Corruption and Language on the Protrade Effect of Immigrants: Evidence from the American States, Dunlevy 2006). Recent evidence from as urvey on United States firms, suggests that around 8% of immigrant-owned firms in the US exported in 2012 compared to about 4% of native firms (Immigrant Entrepreneurship in America: Evidence from the Survey of Business Owners 2007 & 2012, Kerr and Kerr 2018).
However, causality from migration to trade has yet to be conclusively established. Studies almost ubiquitously uncover a positive correlation between migration and trade but doubts persist as to whether trading partners’ cultural affinity or bilateral economic policies might be driving the observed positive correlations (Migration, International Trade and Capital Formation: Cause or Effect?, Felbermayr et al 2015; International Migration and Economic Development: Lessons from Low-income Countries, Lucas 2005; International Migration and the Developing World Hanson 2010). These doubts are valid, not least since the estimated impacts of immigration on trade are quantitatively large, therefore representing an important economic channel through which migrants might lead to substantial gains from trade.
We use the exodus of the Vietnamese boat people to the US as a natural experiment to establish a clear causal effect from Vietnamese immigration to American trade with Viet Nam.
The exodus started in April 1975 following the fall of Saigon (today Ho Chi Minh City) to the communist North Vietnamese, when the US military evacuated around 130,000 refugees from what was then South Vietnam. A major part of this evacuation was Operation Frequent Wind, the largest boat and air lift in refugee history.
This first wave of refugees was dispersed throughout the United States as U.S. policymakers, drawing on the lesson from the agglomeration of Cubans in Miami 10 years earlier, were keen to avoid the development of a similar Vietnamese refugee agglomeration. The U.S. government and voluntary agencies oversaw their resettlement and in most cases decided their destinations. The dispersion gave rise to Vietnamese communities in places such as New Orleans; Oklahoma City; Biloxi, Mississippi; Galveston, Texas; and Kansas City, Missouri, which had previously received few immigrants from Asia (Growing Up American: How Vietnamese Children Adapt to Life in the United States, Zhou and Bankston 1998). It constituted the first of many waves as subsequently hundreds of thousands of Vietnamese refugees fled Viet Nam to escape protracted persecution in re-education camps and agricultural collectives.
Between 1975 and 1994, around 1.4 million Vietnamese refugees were resettled in the United States. Figure 1 plots the waves of Vietnamese immigration to the US (dotted line), with three spikes corresponding to the fall of Saigon, the Sino-Vietnamese War and later the introduction of US policies designed to welcome additional waves of Vietnamese refugees. These massive immigration shocks occurred while the U.S. imposed a trade embargo on Viet Nam under the auspices of the Trading with the Enemy Act. The opening up of trade with Viet Nam in 1994 led to a rise in US exports to Viet Nam (bold line) that was particularly pronounced in the late 2000s.
Our natural experiment thus combines a large immigration shock of Vietnamese refugees to the United States – the first wave of which was dispersed across US states – in tandem with a lasting trade embargo. These events constitute an ideal setting to test the causal link from Vietnamese immigration on US exports to Viet Nam following the lifting of the trade embargo in 1994.
Our results show that the share of US exports going to Viet Nam over the period 1995-2010 – i.e. following the lifting of the trade embargo in 1994 – was higher and more diversified in those states with larger Vietnamese populations, themselves the result of larger refugee inflows two decades beforehand. We find that states with larger Vietnamese populations as measured in number of Vietnamese or as shares of state populations, total migrant stocks or Asian migrant stocks, are associated with greater exports to Viet Nam, whether expressed as shares of state GDP or total exports. Our results, which are robust to controlling for sincome per capita, remoteness from US customs ports and export structure, suggest that a 10% increase in Vietnamese migrants raises the ratio of exports to Viet Nam over GDP by 2% and the share of total exports going to Viet Nam by 1.5% (see Figure 2).
Abundant anecdotal evidence also suggests the overseas Vietnamese take an active role in fostering trade between the United States and Viet Nam. One particularly poignant example is that of David Tran, once a major in the South Vietnamese army, who fled from Viet Nam in 1979 following the Sino-Vietnamese war. After time in a United Nations refugee camp, he arrived in the US in January 1980. After settling in Los Angeles, he established Huy Fong Foods, naming his company after the Taiwanese freighter on which he left Vietnam. Chief among Huy Fong Foods’ products is Sriracha sauce, a global brand, which totalled sales of $60 million in 2012. Strikingly, 80% of these sales were exports to Asia.
Many Vietnamese businesses provide information and business services to U.S. multinationals wishing to do business in Viet Nam and help them navigate a multitude of legal hurdles. For example, the first companies that established long-distance telephone and flight services to Viet Nam after 1994, drastically reducing information barriers between the two countries, were founded by Vietnamese migrants.
By drawing lessons from one of the largest refugee waves in recent history, our paper provides cogent evidence of a causal link from immigration to exports. Our results lend further support to the idea that immigrants’ ties with their home nations, maintained by a common language and regular flows of information, bring nations closer together and represent an important channel through which immigrants, or in our case refugees nurture long-run development.
This is an adapted article that first appeared as VoxEU column voxeu.org/article/migrant-networks-boost-trade.