6.4  Differences in the characteristics of goods and countries

Theory suggests, and empirical studies largely confirm, that the effect of migration on trade varies with the goods being traded and the countries involved. We intend to carry out detailed analyses of differences between types of goods in future work. In the present paper, we simply look at the effect of excluding certain goods for which the effect of migrants is likely to be small. We re-estimate our results using exports excluding agriculture. The reason for excluding agriculture is that most of New Zealand’s international agricultural exports are channelled through a few large companies, which presumably are large enough to recruit internationally if they cannot draw on local migrants. We also re-estimate our results using imports excluding oil, on the grounds that imports are channelled through a few large companies, and also because petroleum products are homogeneous goods which pose fewer of the transactional difficulties that migrants are expected to alleviate. Our expectation is that the coefficients on the migration variables should be larger in the specifications excluding agriculture and oil than they are in the benchmark specifications.

As with previous studies, we hypothesise that migrants have a stronger effect on trade when they come from a non-English-speaking country, because the migrants’ language skills are then needed, and because language proxies for cultural and institutional differences from New Zealand. We test for such effects by interacting the migrant variable with the language variable. We also hypothesise that migrants have a stronger effect when they come from a low-income country (having controlled for the size of the countries’ GDPs), since low income proxies for cultural and institutional differences, and for difficulties in obtaining information and enforcing contracts. We test for this by interacting the migrant variable with a low-income variable.

6.5  Changes in elasticity with the size of the migration stock

We examine how the size of the migrant stock affects the elasticity of trade with respect to migration. We do this by adding the square of our migrant variable to the regressions. This is equivalent to assuming that the elasticity of trade with respect to migration declines linearly with the log of the number of migrants. This assumption is somewhat arbitrary and has the unrealistic implication that the elasticity will eventually become negative in many cases. As discussed in Section 4, Gould (1994: 307) and Wagner, Head, and Ries (2002: 520-22) use alternative, more complicated, expressions. Gould’s coefficients are, however, difficult to interpret. The coefficients in Wagner et al’s expression have a clear interpretation, but it is not feasible to estimate them as part of a selection model.

6.6  Migrant stocks and tourism

As discussed in Section 4, previous studies of the effect of migration on trade have looked exclusively at merchandise trade. We examine the effect of stocks on an important component of the international services trade: tourism.

Ideally, we would like to use data on expenditure by overseas visitors. Unfortunately, such data are only available for a small subset of origin countries. Comprehensive data are, however, available on the number of visitors arriving from each country. We therefore use visitor numbers to proxy for expenditures. Most visits to New Zealand are for tourism or similar purposes: in the year to March 2004, 51% of visitors stated that their reason for visiting was “tourism/holiday” and a further 28% stated that it was to “visit friends/relatives”.[9]

Census respondents are recorded as “usually resident”, and hence included in our foreign-born measures, only if they answer yes to a question asking whether they live in New Zealand. Some short-term visitors may, however, misinterpret the question and be inappropriately included. This would bias upwards our estimates of the effect of migration on visitor flows. The help sheets accompanying the 1996 and 2001 Census forms explicitly stated people should not answer yes to the residency question unless they were in New Zealand for more than a year. We re-run our model using data from the 1996-2002 period alone to see whether this affects our results.

6.7  Additional robustness testing

To examine the sensitivity of our results to the sample chosen, we run the model on several different sub-samples of countries. We split the sample into English and non-English speaking countries and high income and low income countries. We also examine the effect of simply omitting countries with no migrants, rather than using the Zero Migrant variable.

We have not included a real exchange rate variable in most of our regressions, as the necessary data are available for only about half of our sample. To assess whether the omission of the exchange rate variable is likely to have affected our results, we apply our benchmark specification to the sub-sample, and then recalculate using the real exchange rate variable.

6.8  Variables

Table 3 summarises the variables. The sources of our data are discussed in Section 6.1.