In almost every country with foreign-born citizens, immigration sparks controversy. Yet, the economic realities of immigration are far more complex than the negative narratives suggest. Contrary to the claims that immigrants are a burden, research shows they play essential roles in driving innovation, enhancing productivity, and fostering economic growth in their adopted countries. Immigrants also elevate their home and host countries’ positions in global value chains, contributing to economic resilience.
New research from the University of Minnesota Duluth reveals that immigrants contribute far more to national economies than previously understood. They facilitate trade in value added (TiVA)—a process by which countries specialize their production, move up the value chain, and boost trade sophistication. Moving up the value chain means transitioning from producing basic goods to more complex, high-value products, a shift requiring improved skills, technology, and production methods.
Boosting trade
What is trade in value added, and why does it matter? In today’s global economy, few products are made entirely within one country. Instead, production occurs across multiple nations, with each contributing a piece of the final product. TiVA measures each country’s contribution, offering insight into global value chains. For example, while an iPhone is assembled in China, its components come from various countries, each adding value.
The study found that a 10% increase in immigrants from a specific country residing in one of the 38 OECD member states leads to a 2.08% increase in value added from their home country, which is then embedded in their host country’s exports. This effect is strongest in the services sector, followed closely by agriculture and manufacturing.
Consider Indian software engineers in Silicon Valley. Their knowledge of both the U.S. tech industry and India’s IT sector fosters partnerships that result in higher-value U.S. tech exports integrating Indian expertise. Or take Chinese immigrants in Italy’s fashion industry, whose cultural understanding helps Italian luxury brands tailor products for Chinese consumers, enhancing both countries’ standing in the global fashion value chain.
Briding economies
Immigrants serve as crucial bridges in global trade networks, leveraging their unique skills and connections to strengthen economic ties between nations. Previous research has shown that immigrants play a significant role in bilateral trade, and this study underscores the importance of their contributions in facilitating trade in value added.
As skepticism toward globalization and migration grows, understanding immigration’s economic benefits becomes vital. Immigrants don’t just take jobs—they create new value and economic opportunities that may not have existed otherwise. Their diverse skills and insights often enhance innovation, fill labor gaps, and open new markets. Immigrants’ knowledge of their home countries also helps businesses in host nations navigate cultural barriers, fostering trade and economic development.
For their home countries, immigrants act as cultural ambassadors, promoting awareness of products and services while facilitating knowledge transfer, investment, and business connections. This boosts both home and host countries’ integration into global value chains.
Facilitating trade
Moreover, immigrants don’t just contribute to basic goods trade. They help move countries toward trading more complex, higher-value products and services, a critical factor in economic development. Nations positioned higher in global value chains tend to reap more significant economic benefits.
The study’s findings have significant implications for both immigration and trade policies. Restrictive immigration policies may hinder a country’s trade performance, while more open policies could boost economic competitiveness. The economic contributions of immigrants extend far beyond labor market and tax-related benefits, suggesting that policymakers should adopt a more comprehensive view of immigration’s economic effects.
These findings align with previous research on the value of workforce diversity, particularly for firms engaged in international trade. Immigrants’ diverse backgrounds provide invaluable insights and connections that help companies thrive in global markets.
It’s important to note that immigrants’ impact on trade in value added varies across countries and sectors. This suggests that targeted policies—rather than one-size-fits-all approaches—might be the best way to maximize immigration’s economic benefits.
Utilizing skills and connections
Supportive policies and institutions are key to helping immigrants fully utilize their skills and networks. Programs for economic integration, language training, credential recognition, and entrepreneurship support can help unlock immigrants’ full potential as drivers of economic growth.
As global value chains become increasingly complex and interconnected, the role of immigrants in facilitating trade and value creation will only grow more significant. Countries that embrace this reality will gain a competitive edge in the global economy.
In sum, immigrants are not economic burdens but valuable assets that enhance the global economic landscape. By fostering sophisticated trade linkages and contributing to global value chains, immigrants play a pivotal role in advancing economic development. As immigration debates continue, it’s essential to look beyond oversimplified narratives and acknowledge the nuanced ways immigrants contribute to prosperity in an interconnected world.
