Ratio Working Papers,
The Ratio Institute

Abstract: Do anti-migration sentiments threaten internationalization? One major argument of the pro-Brexit campaign in the UK was that Brexit would allow greater control over immigration. The most recent US presidential election also focused on the issue of immigration. Anti-migration sentiments could constitute a threat to internationalization considering that migrants can help lower costs associated with internationalization. Despite the vast literature on the migration-trade nexus and its important implications for policy, however, there are very few examples where governments and policymakers have highlighted the role of migration for trade and other aspects of internationalization. One explanation could be the lack of an accessible and comprehensive survey of the available theory and evidence on the nexus between migration and internationalization. This article intends to bridge this gap. We review and discuss over 100 published papers on the subject, from the pioneering country-level studies to the nascent firm-level studies that exploit employeremployee data. To our knowledge, this is the first paper to provide a wide-ranging review of both the different strands of theory related to the relationship between migration and internationalization, as well as early and new empirical results on this nexus. We find substantial support in the literature of an internationalization facilitating influence of migration. The evidence can be found in various settings, from individual small countries to groups of large countries, in both developed and less developed economies, and for regions and firms. Although the evidence suggests that migration can help to increase confidence and facilitate the flow of information between countries, which reduces the costs of—and improves the prospects for—internationalization, we also find substantial gaps and inconsistencies in the previous literature. More research is therefore needed. The theory is still incomplete and does not provide a coherent framework for explaining the interlinkages between migration and internationalization. Furthermore, a large part of the empirical literature has been based on aggregate data, which has stood in the way of robust evidence on the direction of causation and the main mechanisms at play. The nascent firm-level approach has the potential to bridge several of the existing knowledge gaps, but the research is still in its initial stages. Our aim is that this article will encourage future research, which will fill in the missing pieces. In addition, we hope the article can help policymakers formulate better policies for the promotion of internationalization.

Keywords: Migration; networks; information; trade; foreign direct investment

JEL-codes: D20; D80; F14; F16; F22; F23; J61

39 pages, December 22, 2017

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