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World Economy

International Trade and Labor Market Integration of Immigrants

Journal Article
Lodefalk, Magnus , Fredrik Sjöholm and Aili Tang (2022). “International Trade and Labor Market Integration of Immigrants”. World Economy 45(6), 1650–1689.

Magnus Lodefalk, Fredrik Sjöholm, Aili Tang

We examine if international trade improves labor market integration of immigrants in Sweden. Immigrants participate substantially less than natives in the labor market. However, trading with a foreign country is expected to increase the demand for immigrants from that country. By hiring immigrants, a firm may access foreign knowledge and networks needed to overcome information frictions in trade.

Using granular longitudinal matched employer-employee data and an instrumental variable approach, we estimate the causal effects of a firm’s bilateral trade on employment and wages of immigrants from that country. We find a positive, yet heterogeneous, effect of trade on immigrant employment but no effect on immigrant wages.