An Analysis of the Relationship between Bilateral Trade and Labor Force Immigration Considering the Role of Financial Crises (Banking and Sovereign Debt Crises)

Abstract

The immigration of labors has always been noticed by economists since it can change the economy of countries. In the literature of international economics, labor force immigration is studied by the mobility of factors of production and trade. In this case, empirical studies have found substitutive and complementary relationships for the two, which necessitate consideration of other elements influencing this relationship. One of the phenomena that can affect both labor force immigration and bilateral trade is the financial crises of the countries. Therefore, this study analyzes the parametric effect of bilateral trade and the nonparametric effect of financial crises on labor force immigration in the Middle East and OECD countries during the period of 1995–2017. For this purpose, two indices of banking market pressure and debt market pressure have been used to study financial crises such as banking crises and sovereign debt crises, and the semi-parametric gravity model of immigration has been estimated by using random effects. The estimation results show that there is a substitution relationship between bilateral trade and labor force immigration, and both types of mentioned financial crises have a non-parametric effect on immigration. So that the effect of these two types of financial crises on labor force immigration has been on the upward for some periods and downward for other periods. Besides, these financial crises have reduced the labor force immigration among business partners. In other words, there has been a nonlinear relationship between the two financial crises.