Immigration and international trade: A nonparametric and semiparametric approach

This dissertation makes two important contributions. First, it looks into the effect of immigration on international trade at a theoretical and empirical level. Secondly, it contributes to the nonparametric and semiparametric fixed effect panel literature.; In the theoretical model I analyze the effect of immigration on the terms of trade between the country of origin of the immigrants and their new country of settlement. Two distinct effects of immigration are discussed. First, immigration changes the factor supplies in the two countries, and secondly, immigration can affect the pattern of demand for the final goods. It is shown that, in the Ricardian framework, the terms of trade move in favor of the country of origin. In the Heckscher-Ohlin model, the movement in the terms of trade is, in general, ambiguous. However, a sufficient condition under which the terms of trade move in favor of the country of origin of the immigrants can be formulated.; The effect of immigration on international trade is an empirical question. The empirical model hypothesizes that immigration facilitates international trade with home countries by lowering transaction costs. Immigrants also demand products from their country of origin, and thus stimulate trade. Using a panel data set for 1973–80, I estimate a semiparametric dynamic, fixed-effect model, which is an application of one of the new estimator proposed in this dissertation. The immigrant stock, a proxy for transaction costs, enters the model non-parametrically, whereas other variables enter the model log-linearly, as implied by the gravity model of international trade. The results indicate that the immigration effect on imports is positive for both consumer (final) and producer (intermediate) goods, but the effect on exports is positive only for consumer goods.; Panel data literature is confined to parametric (linear) models. With no functional form imposed on the model, new nonparametric and semiparametric fixed effect panel models both in a static and dynamic framework are proposed. To take care of the fixed effect both deviation from mean and differencing transformations are used. For the dynamic model instrumental variable estimators are proposed. The asymptotics of the estimators are established and Monte Carlo simulations are presented.