This week's Economist has a
special report on migration in business which includes a delicious cover as well as a bunch of fascinating stories. The report focuses mostly on how Chinese and Indian diasporas create trade and new business ideas by facilitating the flow of information across countries and by fostering mutual trust.
The report is based on a wide body of theoretical and empirical work, mostly initiated by
James Rauch, though it doesn't cite much of it. In a series of papers he argued that international trade was hampered by search costs as well as contract-enforcement costs. This is why migrant networks, and
especially ethnic-Chinese ones, play such an important role in building trade relationships. To show that networks foster mutual trust,
Dunlevy showed that immigrants in the US were most useful to promote exports to corrupt countries. I showed this was also
the case for Swiss exports. This is also true when using international
data from the World Bank. The two graphs
here show that the bilateral stock of migrants between two countries increases their trade the higher the corruption whether it's in the importer or exporter country.
Their role as information providers, though quite straightforward, has been harder to identify. Rauch had argued that since networks facilitate trade more in differentiated products, such as cameras, than for products sold on organised markets, such as coffee, they provide market information. The problem with this strategy is that differentiated products are not only information-intensive but also trust-intensive, so we cannot be sure the information channel is at play, as I argue in my
paper. A promising avenue is to try to estimate information frictions between countries, and show that networks are most useful when these are high. Information frictions can be captured by a lack of news coverage, a lack of internet connectivity, or a lack of phone traffic (see
this new paper by Treb Allen) etc...
Last but not least, The Economist also point out that "the ability to use informal networks built on trust and a sense of belonging is not restricted to honest businesses such as soap making. Those with dirty hands can build criminal networks on a very similar basis." This is exactly what we tried to show empirically in a
paper with Lorenzo Rotunno. We showed that import-tariff evasion, a form of illegal trade, was made easier by Chinese networks who know which border official is corrupt and know how to disguise products. The Economist also has put together some new data on Chinese communities abroad, maybe a better estimate than the
stock of ethnic-Chinese migrants we use in our paper.
The report also cites
Borderless Economics, a new book by Robert Guest, The Economist's business editor, on which this report seems to be based. I'll add that to my Amazon wishlist. But I need to get a kindle before buying it. Too many trade frictions otherwise.
I've been reading a couple of books about "China and Africa". The first one is China Safari, by two Geneva journalists who travelled to China and a bunch of African countries and tried to figured out what was going on with the Chinese in Africa. This book is full of horror stories. It portrays the Chinese as heartless, corrupt, with no respect for the environment, laws, decent wages, human rights, or human lives. Wherever they go they cause mayhem. They sell weapons. They have babies with African girls only to abandon them. They do not talk to journalists, and when they do, they are not direct. Chinese products are junk. All in all, a bleak picture hopefully not too representative of reality.
The second book is more balanced. Deborah Bautigam, a professor at American Univeristy, digs up the little available data rather than lay out depressing anecdotes.
She tries to put numbers on foreign aid and investment. She puts them in historical perspective and compares them with the West's. She even suggests the Chinese could propel African manufacturing, rather than destroy it, as is usually claimed. If you want to know more about China in Africa, read Bautigam. Both books do offer the same conclusion though. China has put Africa back on the map. African governments should grab this opportunity and try not to mess it up.
