Do High-Skill Immigrants trigger High Quality Trade?

This paper investigates the links between product quality and the pro-trade effect of ethnic networks using a large panel on bilateral stocks of immigrants with information for 19 OECD destination countries and 177 origin countries. In line with the approach of Rauch and Trindade, we classify traded goods according to their quality level and separately estimate pro-trade elasticity of ethnic networks for each subgroup. We allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level. Our findings suggest that the trend of the pro-trade effect of immigrants over quality seems to be driven by the North–South specialisation across varieties for both supply and demand. Indeed, ethnic networks mostly facilitate imports of those varieties for which their countries of origin have a comparative advantage; as for exports, ethnic networks are more effective in promoting exports to their homeland of those varieties for which there is relatively higher demand. We show that the same trend applies to products characterised by the same degree of differentiation according to the classification proposed by Rauch and – given their lower liquidity constraints and advantages in human capital – we find a greater impact of high-skilled migrants consistent across all quality levels.