Studies of the contemporary period for the United States and for Canada have established that the presence of an immigrant population is associated with an increase in trade between the immigrants' host and origin countries. We wish to discover if such a protrade phenomenon was systematically associated with the massive inflow of immigrants to the United States during the 40 years preceding World War I. Applying a gravity model to U.S. imports of 78 commodities from 17 countries at five-year intervals, we find support for a broad pro-import immigrant effect, especially for more fmished and more differentiated goods.
Gravity model explanations of trade volumes frequently include dummy variables to account for the commonality of language among trading partners. In this paper we use a data set for the number of people in a country who speak English as a first language or English as a second language (Crystal, 1997) as an indicator of the ease with which trade with the United States occurs. Controlling for commodity fixed effects we use SITC three digit industry data centred on 1995 United States bilateral trade with 33 countries to determine the effect of the degree of language commonality on bilateral trade. Both English as a first language and English as a second language are found to be less important for exports than for imports. This is true for all three digit industries as well as when the specific industry groups identified in Rauch (1999) are considered. I INTRODUCTIONWhich products are traded among countries and the volume of trade in these products are two questions that have captured the attention of international trade economists for more than two centuries. Ricardo, Mill, Heckscher, Ohlin, and others have focused on determining which products would be exported and which would be imported. In the 1960s interest shifted to determining the volume of trade and the work of Tinbergen (1962) andLinnemann (1966) are early examples of such studies. Models of these two aspects of trade, however, are quite different. Models that determine which products are traded focus on the relative factor endowments of countries, whereas models of the volume of trade focus on the relative economic size and well being of countries.We focus on the determinants of the volume of trade, which are usually captured in the framework of a gravity model. If one assumes identical and homothetic preferences, then in a gravity model the relative economic size of trading partners determines the potential volume of trade. Economic size is generally measured by some combination of country GDP, population, or per capita GDP. In a gravity model, the difficulty associated with the exchange of
An earlier version of this paper was given at the Economic History Association Meetings, in Nashville TN, September 2003. We are grateful to participants at EHA sessions and to Eric Bond and William Collins for helpful comments. The views expressed herein are those of the author(s) and not necessarily those of the National Bureau of Economic Research.
The gravity model has been called the ' ... workhorse for empirical studies ... ' in international economics (Eichengreen and Irwin, 1998, p. 33). Selective breeding practices tend to improve the performance of racehorses, and so it has been with the gravity model. Many of the seminal papers that contributed to the current stature of the gravity model are cited in the six papers contained in this Special Issue. Each of these six papers focuses on a specific topic while often addressing common concerns with the existing specifications of the gravity model. Four of the papers address, in varying degrees, the issue raised by Grossman (1998) regarding the magnitude of the estimated distance coefficient in the gravity equation. Another draws attention to the sensitivity of results to the existence of outliers in the data. All of the papers attempt to resolve the specification issues that arise in their particular case. Indeed, addressing specification issues is at the heart of the selective process of determining which gravity models should be employed in future research.Robert Feenstra addresses a variety of issues related to the effect of borders on trade between the United States and Canada as well as within each country. Focusing on the price effect of borders, he compares three methods: using published price indexes; using the computation method of Anderson and van Wincoop (2001); and using country fixed effects. The latter two methods produce consistent estimates, but the user friendly nature of the country fixed effects approach give it an edge as the preferred approach.Don Wagner, Keith Head, and John Ries examine the effect of the presence of immigrants on trade for Canada at the provincial level. They use country fixed effects at the national level, which allows the variation in the stock of immigrants in each province to capture the effect on trade resulting from the presence of immigrants that came from the trading partner. They also attempt to capture the effect of a common language. Immigrants have a larger impact on imports than exports, which is consistent with the so called 'immigrant taste effect' argument.Prakash Loungani, Ashoka Mody, and Assaf Razin analyze the ability of the gravity model to explain financial flows as well as trade flows. Theory leads one to expect greater asset flows between countries that are farther apart, but prior work indicates that the sign on the distance variable is significantly negative, as it is when considering trade flows. The authors show that properly accounting
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