Immigrant Specificity and the Relationship between Trade and Immigration: Theory and Evidence

Studies routinely document that immigrant employment concentrates in non‐traded goods sectors and that many immigrants have low inter‐sectoral mobility. We consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation's pattern of production and trade. We model an economy producing three goods; one is non‐traded. Domestic labor and capital are domestically mobile but internationally immobile. Allowing that some new immigrants will become specific to the non‐traded goods sector, the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants. Empirical investigation in a panel data set of OECD countries supports the model's prediction that immigration raises the output of non‐traded goods. Consistent with the model, we also find that immigration and trade are complements. Given its empirical support, the model's implications for immigration policy are then discussed.