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Does immigrant employment matter for export sales? Evidence from Denmark

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Abstract

Immigration impacts on the economy in ample ways: it affects growth, wages and total factor productivity. This study deals with the effects of immigration on firm exports. Can firms benefit from hiring immigrants to expand their export sales? Or do immigrants who live in the firm’s region affect trade? In contrast to the existing literature, we are able to distinguish these two distinct channels. Using matched employer-employee data from Denmark for the years 1995–2005, we provide novel insights in the nexus between exports and immigration. We further contribute to the literature by providing first evidence on the adjustment of firms’ product portfolio in response to immigration. Our empirical results are consistent with the claim that immigration lowers barriers to trade. Both, regional immigration and foreign employment matter for the composition of firm-level exports. As a novel insight, our findings suggest that firms benefit from immigration in terms of expanded export sales, when they hire foreign employees. We only find weak evidence for the local presence of foreigners to increase export sales, which we ascribe to the conjecture that at least some trade-cost reducing forces of immigration like for example intercultural knowledge or personal and business networks abroad, can only be accessed or exploited via foreign employment.

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Notes

  1. An independently conducted unpublished study by Hatzigeorgiou and Lodefalk (2011) also uses matched employer-employee data from Sweden to address the trade-migration nexus. Koenig (2009) uses French firm-level data to analyze the link between export market entry and immigration.

  2. Important theoretical contributions include for example Fosfuri et al. (2001) and more recently Dasgupta (2012).

  3. Firms with negative total revenue or negative export revenue or negative import purchases as well as firms with an export revenue greater than the total revenue are excluded.

  4. Our empirical strategy takes sample selection across markets into account.

  5. We opt for this level of aggregation in order to capture large swings in the composition of the export portfolio.

  6. In 2006, Denmark has implemented an administrative reform. The former 15 regions including 270 municipalities have been replaced by five regions and 98 municipalities. We use the terms region and county interchangeably thereby always referring to the pre-reform county.

  7. Of course, omitted factors like size may drive the positive correlation between exports and migration. In the empirical analysis, we take this into account.

  8. This conclusion relies on the identifiability of the effects of regional immigration and immigrant employment with fixed effects. As Table 1 suggests that both, the regional immigrant stock and foreign employment exhibit sufficient within variation, we are confident that the estimation strategy is appropriate, especially in light of the importance to account for unobserved heterogeneity at the firm and country level.

  9. We are grateful to an anonymous referee for suggesting the second instrument.

  10. FE IV results are qualitatively and quantitatively in line with results for just using the second instrument. Similar as in Mion and Opromolla (2011), we have also tried to include the stock of foreign immigrants from country j at time t − 3 as an additional instrument. The main conclusions remain unchanged, the major difference being that we find evidence in favor of an impact of local immigrant networks on export sales. As we consider foreign employment rather than hiring, we have decided to refrain from using this instrument further. Results are available from the author upon request.

  11. We are grateful to an anonymous referee for drawing our attention to this concern.

  12. I am grateful to an anonymous referee for drawing my attention to these papers.

  13. This does not exclude the possibility that spillovers occur for other spatial units, for example at the municipality level. Yet, we believe that the regional level is the most decisive one in our case given that it is the level where regional immigration is observed.

  14. Evidence is also found for firms which export to Europe. This restriction however is not feasible for our sample, as almost all firms export to a European country in the sample period.

  15. See Görg and Strobl (2005) for an example of limited transmissibility of skills from experience in multinational companies across industries.

  16. Unreported results show that the estimated coefficient on regional immigration and foreign employment stays qualitatively the same and quantitatively similar when lagging domestic sales by 2 or 3 periods in case of both OLS and IV estimation. The FE IV results, however, suggest an implausibly strong negative impact of the average hourly wage on export sales, potentially reflecting the worse performance of the instrumentation strategy in this setup. Tests indicate that instruments are less strong than in the reported results.

  17. Main conclusions remain unchanged if we use instead the measures separately or define indicator variables for high- versus low-barrier countries.

  18. One weakness of this exclusion restriction is that it may correlate with foreign direct investment, which we cannot account for due to data limitations. When solely relying on identification via functional form, results are qualitatively similar. Results are available from the author upon request.

  19. Unreported results show that migration and foreign employment does also promote imports, thus ceteris paribus total openness would increase in response to immigration.

  20. In this case, we consider only official languages in the export destination countries. It is likely that ethnic languages matter as well and are very likely to capture common cultural roots. Common official languages may matter more for bureaucratic procedures to be overcome to export.

  21. There may be other dimensions along which immigrants promote trade beyond country borders, for example via third-country immigrant networks or contiguous countries. To explore these dimensions in detail is beyond the scope of this paper.

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Acknowledgments

The paper has greatly benefited from comments and suggestions of two anonymous referees. I would also like to thank the editors of this journal. Moreover, I am grateful to Tor Eriksson, Gabriel Felbermayr, Holger Görg, Jennifer Hunt, Benjamin Jung, Wilhelm Kohler, Robinson Kruse, James Markusen, Philipp Meinen, Pierpaolo Parrotta, Dario Pozzoli, Philipp Schröder, Christian Gormsen Schmidt, Valdemar Smith and Farid Toubal. I would like to thank participants at the EPRU Seminar in Copenhagen University 2011, at the ISGEP Workshop in Lüneburg 2011, at the joint ASB-IfW Workshop in Kiel 2011, Canadian Economics Association Conference 2011, the International Workshop on Immigration and Economic Growth 2011, as well as at the Tübingen-Hohenheim Economics Workshop 2010 for their feedback. I am thankful to Luis Diaz-Serrano, Dhimitri Qirjo and Luz Saavedra for carefully discussing an earlier version of this paper. Also, I gratefully acknowledge financial support from the Solar foundation and hospitality of the Rotman School of Management, University of Toronto, where parts of this research project were conducted. I am indebted to Walid Hejazi and Ignatius Horstmann.

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  1. Institut für Volkswirtschaftslehre, Leuphana University Lüneburg, Scharnhorststr. 1, 21335, Lüneburg, Germany

    Sanne Hiller

  2. Department of Economics, Aarhus University, Hermodsvej 22, 8230, Aabyhøj, Denmark

    Sanne Hiller

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Hiller, S. Does immigrant employment matter for export sales? Evidence from Denmark. Rev World Econ 149, 369–394 (2013). https://doi.org/10.1007/s10290-013-0146-5

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