Migrant networks and the export performance of Portuguese firms

February 20, 2019

Fixed costs associated with learning about demand and setting up distribution networks are expected to be lower when there are more potential contacts in the destination market, suggesting a greater probability of market entry and larger export revenues. This paper matches historically-determined emigration stocks with detailed firm-level data from Portugal to examine the effect of migrant networks on export outcomes.

Portugal offers unique historical features for this analysis. First, the motives and timing of the sizable emigration flows observed in the country during the _Estado Novo _authoritarian regime, along with their steep fall in the aftermath of the democratic revolution of 1974, alleviate concerns of reverse causality. Second, emigration flows come predominantly from the North of Portugal, suggesting that firms located there are more likely to have close ties with the emigrants.

The paper provides evidence that larger stocks of Portuguese migrants in a given international destination significantly increases the likelihood that Portuguese firms serve that market. This effect tends to be larger for firms that are more likely to have a larger number of contacts among the emigrants—i.e., firms located in North of the country, and firms that already exist when the bulk of emigration flows takes place. Conditional on a firm serving a market, the presence of migrant networks appears to be an important determinant of how much it sells there. Using two alternative methods to account for self-selection into export markets, we find that export revenues tend to increase systematically with the number of migrants in the destination. Taken together, these findings suggest that migrant networks are an important source of market and firm-specific heterogeneity in entry costs and demand.

Caption: Portuguese emigration flows, 1930-2003. Data from Portuguese Ministry of Foreign Affairs and the National Statistics Institute.

Click here to go to the paper by Paulo Bastos and Joana Silva.