Does temporary migration increase trade?

In a situation of lacklustre growth, increasing international competition, and a migration crisis, the EU is struggling to develop a (more) common labour migration policy as well as a modern trade policy. These efforts are mainly conducted in separate silos, yet recent research shows that they ought to be closely connected. Facilitating movement of people across borders is in fact a highly useful tool for engaging in and benefitting from specialised and internationalised production networks.

New firm-level evidence: Recently arrived migrants promote trade

A large body of research has established a positive link between immigrants and bilateral trade, both at the macro and micro levels.¹ Temporary movement is more difficult to study, due to lack of appropriate data, but for example Jansen and Piermartini (2009) exploit data on the US skilled labour visa programme (H1B) and find a positive impact on US exports and imports with the workers’ countries of origin. Other studies demonstrate how business travel (Belenkiy and Riker 2012) and international tourist arrivals (Brau and Pinna 2013) promote trade in goods, while visa requirements reduce it (Yasar and Lisner 2012, Kapelko and Volchkova 2013).

To shed further light on the role of temporary movement of persons for trade, we have analysed the impact of recently arrived migrants on firm exports of goods and services using data for 30,000 Swedish firms over the period 1998-2007 (National Board of Trade 2015a). Our measure captures international recruitments, intra-corporate transfers and other non-refugee migrants who expect to stay for at least one year and who are reported as employees to the tax authorities. We contribute to the existing literature by using employer-employee-level data and by also including services trade.

The findings suggest that recently arrived migrants reduce the negative impact of distance on foreign trade. Recently arrived migrants seem to assist firms and their customers in overcoming informal and, in particular, informational barriers to trade with their country of origin. The association with trade is non-trivial. According to the estimates, the hiring of one additional migrant from a certain country is linked to a 6% average increase in the hiring firm’s export of services and a four percent average increase in its export of goods to that country.

Migrants provide networks and market knowledge

The association to exports is stronger for recently arrived migrants than for permanent migrants, especially in services. This supports the idea that recently arrived migrants are hired for their up-to-date market specific knowledge and/or network links to their countries of origin.

Other findings corroborate this idea. For example, the association to exports is stronger for both heterogeneous goods and services (as compared to their homogeneous counterparts), for which informational frictions are, a priori, expected to be more pronounced. Furthermore, the educational level of the recently arrived migrants also matters.  Skilled migrants are found to be particularly important for the export of services, whereas unskilled migrants appear to have an impact on the export of goods.

It would therefore seem that by connecting firms with customers and networks abroad, newly arrived migrants are potential as well as actual sources of competitiveness.

Visas and work permits create trade costs

Interviews with business representatives furthermore show that effective trade depends on the comings and goings of many other types of temporary migrants – business travellers, potential investors, international trainees, employed as well as self-employed service providers (National Board of Trade 2013, World Economic Forum 2013a). We therefore investigated how procedures for visas and work permits for these migrants create trade costs.

As demonstrated by the literature on global supply chains, addressing one’s own barriers to trade is necessary to be competitive in an interconnected world. Addressing procedural bottlenecks can be as, or even more, welfare-enhancing than improving market access (World Economic Forum 2013b). In National Board of Trade (2015b), we show that this also applies to movement of persons. Based on company interviews and empirical studies, we find that difficult and lengthy procedures for visas and work permits to Sweden can have substantial effects on companies in the form of increased costs, delayed projects or deliveries, inefficient operations, and sometimes lost contracts or opportunities. For example, as we ourselves have had reasons to note, the cost to obtain a short term Schengen visa may range from 50 to 2,000 euros or more.

The uncertainty of if and when entry for a key person can be granted is often more difficult to handle than costs. Depending on how many permits are needed, processing times can vary from just a few days up to several months. For the applicant, travel to interviews and preparation of documents add to their waiting time. Applications may also be refused, which adds to the uncertainty and exacerbates other costs.

Some types of trade are more sensitive to difficulties created by visas and work permits:

• Trade in services and heterogeneous goods, which depend more on personal interactions than homogenous goods (as discussed above).
• Trade in global value chains, which relies on expertise from many countries.
• Production depending on scarce or highly specialised skills, since such skills more often need to cross borders.
• Trade by small companies and new market entrants, since they may have relatively less capacity to handle complex procedures than large or incumbent firms.

Interestingly, these types of trade are precisely among those that the EU aims to develop through its future trade policy and negotiations – hence the need to improve coherence with migration-related policies.

Policy implications

Barriers and procedural costs to movement of persons abound all over the world, not just in the EU. The top priority, a reform agenda in the EU and its member states, should therefore be combined with a negotiation agenda. The new Trade Facilitation Agreement of the WTO should serve as inspiration through its emphasis on harmonisation, simplification and standardisation of procedures.

Several EU processes in the near future provide opportunities for adopting more competitiveness-enhancing rules by facilitating entry for third-country nationals and cutting red tape, including:

• The Commission’ trade strategy, which could acknowledge the importance of temporary migrants for trade;
• The review of the “Blue Card Directive” aimed at highly qualified immigrants, foreseen in the May 2015 “European agenda on migration”;
• Ongoing negotiations on revising the Schengen Visa Code and the Directive on Students and Researchers; and
• EU Member states’ implementation of the directives for recognition of professional qualifications and admission of intra-corporate transferees.

In trade negotiations – multilaterally, plurilaterally or bilaterally – the EU as well as its trading partners need to provide ambitious commitments for facilitating temporary movement of persons. Commitments should, for example, include disciplines on the procedures for visas and work permits. This would make agreements better tailored to meeting business realities and further stimulate trade in high-value goods and services.

This article is published in collaboration with VoxEU. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Magnus Lodefalk is a post-doctoral research fellow in economics at Örebro University, Sweden. Emilie Anér is an expert on trade in services, the increasing role of services in manufacturing (“servicification”) and the movement of people across borders. Anna Graneli is an expert on trade and development, trade and the movement of people across borders and on general trends in the global trading environment. 

Image: Crew members of a ship loaded with containers. REUTERS/Paulo Whitaker