According to Dr Huju Liu, a Canadian expert on immigrant entrepreneurship, the correlation between immigration and international trade becomes more relevant with each passing year. As we globalise and, in most developed countries, age out of employment, immigrants bring knowledge and much-needed labour, nevermind the direct economic growth associated with a growing population.
In countries like Canada, characterised by a relatively small domestic market and a relatively large share of foreign-born citizens, prosperity depends on international businesses. While considerable research has attempted to describe the connection between immigration and import and export, few have taken it further to examine the impact of immigrant entrepreneurs. Statistics Canada‘s research paper “The Impact of Immigrant Business Ownership on International Trade” co-authored by Huju Liu, Loretta Fung and Douwere Grekou is one of the first.
We sat down with Dr Liu to learn more about how immigrant entrepreneurs bridge the gap between markets, why the immigrant effect is crucial to future economic growth and where public opinion on the subject is most divided.
How does immigration relate to international trade?
Movement is beneficial. Even before considering entrepreneurship, migration has a positive impact on international trade. A large share of immigrant inflow over time or across regions contributes to higher trade volume. More people translates to more economic activity.
On a deeper level, there are two channels with which immigrants can facilitate international trade. One refers to information – the network effect. That is, immigrants have information and knowledge about both their home and host countries. They know the language and culture. They are familiar with consumer preferences as well as local business environments. Furthermore, immigrants have commercial contacts and access to social networks. For businesses considering expansion overseas, these connections are invaluable, helping to reduce both risk and transaction costs.
The other channel refers to the demand effect. That is, a large population of immigrants in a country can induce a significant demand for products from their home countries, thus facilitating import.
Do these channels correlate to entrepreneurial growth?
Little evidence exists on how immigrants participate in international trade; there is, to some extent, a knowledge gap. Our study, which exclusively uses data gathered from small and medium-sized Canadian enterprises, provides some of the first evidence on how immigrant entrepreneurs engage in international trade.
Immigrant entrepreneurs are decision-makers. Their multinational know-how has the potential to impact their participation in international trade directly. So, we looked into whether immigrant-owned businesses are more likely to trade internationally and with higher value compared to businesses owned by Canadian-born entrepreneurs.
At first, the data did not show any advantage. Immigrants imported and exported fewer products of lesser value than Canadian-owned businesses on average. However, we also found that immigrant-owned importers and exporters were on average employing fewer people, less productive and had greater financial leverage than their Canadian-owned counterparts.
After factoring in these differences, we found that immigrant-owned businesses are more likely to trade with their owners’ regions of origin than their Canadian-owned colleagues. Furthermore, conditionally on being importers and exporters, immigrant-owned businesses traded more intensively. That is, the total value of trade (import or export), the number of products and the average value per product are all higher among immigrant-owned importers and exporters than among the businesses of those born in Canada.
“…Immigrant entrepreneurs contribute to bilateral trade particularly with their home countries by lowering trade cost, possibly through their regional knowledge and networks.”
What about countries other than the owners’ home countries?
The positive effects only pertain to trade with immigrant owners’ regions of origin. Outside of this, immigrant-owned businesses are only at best comparable to their Canadian-owned counterparts. This finding suggests that immigrant entrepreneurs contribute to bilateral trade particularly with their home countries by lowering trade cost, possibly through their regional knowledge and networks.
Are some immigrants more likely to increase international trade than others?
Immigrants with previous business experience and those that are highly skilled or highly educated tend to have a more significant impact on international trade. So, governments wishing to improve or diversify their international trade can foster immigration among these groups.
“Immigrants are the ideal conduit between the two markets. Essentially, they’ve already done the legwork and have an established presence in both places.”
What is the tangible value of these multinational connections?
Information is crucial when entering a foreign market. Although technology has made it easier to obtain information on market conditions, consumer preferences and potential competitors in a foreign country, building this knowledge base can be prohibitively costly and time-consuming, especially for SMEs.
Immigrants are the ideal conduit between the two markets. Essentially, they’ve already done the legwork and have an established presence in both places. These connections likely account for why immigrant entrepreneurs with previous business experience have more of an impact than their previously non-entrepreneurial counterparts.
Do countries with smaller immigrant populations have lesser access to international markets?
Across borders, the results outlined in our paper may not necessarily apply. Every country has a unique immigration system, admits different types of immigrants and varies where international trade policies are concerned.