Migration and trade - Substitutes or complements?

Abstract: Countries interact more and more and borders open up, especially in Europe and within the European Union. A more intertwined world raises the question of how more free movements of goods and people –migration and trade – will affect each other. The purpose of this thesis is to establish whether migration and trade are complements or substitutes. Different theories on international trade and factor mobility predict different outcomes and the discussion about whether migration and trade are complements or substitutes continue. The research area is well explored on a theoretical level but less so empirically. A gravity model approach is used to investigate the link between migration and trade. In order to assess the relationship two gravity equations are tested through regression analysis. Bilateral data for five European countries and their partner countries in the rest of the world are used in the empirical analysis that covers the years from 1997 to 2001. The results are unambiguous and show that migration and trade are complements. The intra European Union effect differs slightly from the general effect but is still complementary.