Media Briefings

MIGRANT NETWORKS BOOST TRADE: Evidence from the Vietnamese Boat People

  • Published Date: July 2018

Following the 1994 lifting of US trade sanctions against Vietnam, the share of US exports going to its former enemy was higher and more diversified in states with larger populations of Vietnamese immigrants. That is the central finding of research by Christopher Parsons and Pierre-Louis Vézina, published in the July 2018 issue of the Economic Journal.

Their study uses the exodus of the Vietnamese boat people to the United States in 1975 as a natural experiment to explore the impact of immigrant networks on international trade. Their baseline results suggest that a 10% increase in the Vietnamese network raised US state exports to Vietnam by between 4.5% and 14%.

Abundant anecdotal evidence also suggests that overseas Vietnamese play an active role in fostering trade between the United States and Vietnam. One particularly poignant example is that of David Tran, once a major in the South Vietnamese army, who fled the country in 1979 following the Sino-Vietnamese war.

After time in a United Nations refugee camp, Tran arrived in the United States in January 1980. After settling in Los Angeles, he established Huy Fong Foods, naming his company after the Taiwanese freighter on which he left Vietnam. Chief among Huy Fong Foods’ products is Sriracha sauce, a global brand that totalled sales of $60 million in 2012.

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The researchers note that immigrants potentially foster international trade by reducing trade costs. Such frictions are quantitatively large, especially for poor countries, and recent research has singled out information costs in particular as inhibiting trade flows.

Immigrants may lower such frictions through their knowledge of their home country’s language, regulations, market opportunities and informal institutions. Immigrants may also decrease the costs of negotiating and enforcing contracts by drawing on their trusted networks, thereby deterring opportunistic behaviour in weak institutional environments.

While a large body of research examines the pro-trade effect of migration, causality from migration to trade has yet to be conclusively established. Studies almost ubiquitously uncover a positive correlation between migration and trade, to the extent that these results are often interpreted as evidence of a positive diaspora externality.

But doubts persist as to whether trading partners’ cultural affinities or bilateral economic policies might be driving the observed positive correlations.

The new study uses the exodus of the Vietnamese boat people to the United States as a natural experiment to establish clear causation from Vietnamese immigration to US trade with Vietnam.

The exodus started in April 1975, following the fall of Saigon to the communist North Vietnamese, when the US military evacuated around 130,000 refugees from South Vietnam. This first wave of refugees was randomly dispersed throughout the United States. It constituted the first of many waves, as subsequently hundreds of thousands of refugees fled Vietnam to escape protracted persecution in ‘re-education camps’ and agricultural collectives.

Between 1975 and 1994, around 1.4 million Vietnamese refugees were resettled in the United States. Concurrently, the United States imposed a trade embargo on Vietnam, under the auspices of the 1917 Trading with the Enemy Act and the 1969 Export Administration Act.

These massive immigration shocks preceded the opening up of trade with Vietnam in 1994. The results of the new study show that the share of US exports going to Vietnam over the period 1995-2010 – that is, following the lifting of the trade embargo in 1994 – was higher and more diversified in those states with larger Vietnamese populations, themselves the result of larger refugee inflows two decades beforehand. The baseline results suggest that a 10% increase in the Vietnamese network raised US state exports to Vietnam by between 4.5% and 14%.

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Notes for editors: ‘Migrant Networks and Trade: The Vietnamese Boat People as a Natural Experiment’ by Christopher Parsons and Pierre-Louis Vézina is published in the July 2018 issue of the Economic Journal.

Christopher Parsons is at the University of Western Australia. Pierre-Louis Vézina is at King’s College London.

For further information: contact Chris Parsons on +61 8 6488 5639 (email: christopher.parsons@uwa.edu.au); Pierre-Louis Vézina via email: pierre-louis.vezina@kcl.ac.uk; or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com; Twitter: @econromesh).