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IZA
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Ethnic Networks and International Trade
by
Gil S. Epstein, Ira N. Gang
(August 2004)
published in: Foders, Federico and Langhammer, Rolf J. (eds), Labor Mobility and the World Economy. Springer: Berlin, Heidelberg 2006, 85-103
Abstract:
There is a well-established high quality literature on the role of networks, particularly ethnic
networks, in international trade. Ethnic networks are a way of overcoming informal barriers
(information costs, risk and uncertainty) to trade by building trust and substituting for the
difficulty of enforcing contracts internationally. The networks we are interested in are those
that form between migrants and natives in the host country and between migrants and their
home country. Ethnic networks exist when assimilation is not complete. We consider the
struggle of migrants to assimilate and, at the same time, the struggle of the local population
to prevent such assimilation. These activities affect trade possibilities. Moreover, we show
that it may well be in the interest of migrants who specialize in trade to, at some point in time,
turn from investing in assimilation activities and instead invest in anti-assimilation activities in
order to preserve immigrants’ preferences for home country goods.
Text: See Discussion Paper No. 1232
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