TRADE: The Trade-Creating Effect of Immigrants: Evidence from Household Purchase Data; Dr Christoph Albert (Collegio Carlo Alberto)

Abstract

We investigate whether and how immigrants affect import penetration across US geographies and the resulting consumption spillovers to native households. We begin by documenting three novel facts: (i) immigrants consume imports at higher rates than comparable natives, (ii) immigrants consume imports disproportionately from their origin, and (iii) counties with a higher immigrant share exhibit a higher import share of expenditures. At the household-level, we estimate that a ten percentage point increase in the share of the local population from a given origin raises imports from that origin by 12%. We rationalize these facts through a model of trade featuring two-sided heterogeneity and fixed costs of exporting, which we estimate using highly detailed scanner data with product and household country of origin.  We leverage model restrictions to show that immigrants primarily reduce the fixed costs of exporting to the US from their origin, while exhibiting little to no effect on variable trade costs or native household preferences. We use the estimated model to quantify the contribution of immigrant populations to both city-level import expenditure and native household welfare. Shutting down all channels through which immigrants affect imports decreases aggregate import expenditure by 7%, with Mexican imports decreasing by 13.4%. Around two thirds of this effect are driven by the composition effect of immigrant preferences for goods from their origin country, which leads to muted, albeit highly heterogeneous, effects on native household welfare.