Increased exports with foreign-born employees

– We have used various statistical models, we have removed the largest companies, and we have looked at different factors surrounding immigrant employees, but the pattern is the same. There is a robust statistical link between the employment of foreign-born workers and manufacturing companies’ exports, says Magnus Lodefalk. While immigrants, in theory, are able to help companies overcome informal trade barriers, any studies on the effects of businesses hiring foreign-born employees were few and far between, opening up for Lodefalk to further explore the field in his doctoral thesis.

The study refers to the 1998-2007 period and encompasses 600,000 full-time employees and trade with 176 partner countries. The increase was most evident in trade with the foreign-born employee’s native country where familiarity with the country, contacts and access to networks are contributing factors. The study into the link between immigrant employees and firm trade is co-authored with Andreas Hatzigeorgiou at Lund University.

Trade benefits all

Serving as the point of departure for the thesis as awhole is the notion that increased trade is good for businesses and for the economy – that the best possible utilisation of common resources benefits everyone involved. Despite measures being taken to reduce the number of trade barriers, a significant number, formal as well as informal, are still in place.

The formal barriers to trade – such as tariffs, regulations and other restrictions – are being discussed within the World Trade Organisation, WTO. Since 2001, trade liberalisation negotiations have taken place in the WTO Doha Round and the next ministerial conference is in Bali later this year. In another study presented in the thesis and co-authored with Susanna Kinnman, Lodefalk is looking at the course of events if the countries would
come to an agreement on the issues discussed under on the Doha agenda. The authors have found that an elimination of the trade barriers in question would result in a 0.2-0.7 increase of GDP in the medium term.

– It may seem a rather marginal increase, but it is significant. It is a conservative estimate and an increase that will gain in significance over a few years’ time. Global trade would increase by some seven per cent, an increase that would particularly benefit developing countries.

The study also shows that the countries that open themselves up to trade, to a greater extent benefit from a more liberal trade policy than those who advocate a unilateral reduction of formal trade barriers abroad in order to retain advantages for their own products.

Servicification

The thesis is also investigating what is known as the growing servicification of the Swedish industry sector, in other words the fact that manufacturing companies are increasingly focused on buying, producing and selling services. When it comes to the supposed decline of Swedish manufacturing, Lodefalk claims that it has been exaggerated and partly has to do with discrepancies in the way in which companies are organised and the way in which production is represented in official statistics.

– If a firm is buying services such as cleaning, security, canteen and other services that they once organised in-house, there is an increased service production which at the same time is removed from their own operations.

– The internationalisation of industrial companies also entails an increased trade in services. Some parts of the operations, such as development, design, finance etc., are perhaps kept on the home turf. Those services then spread to the company’s operations abroad, resulting in an export of services. In addition, previous studies suggest that there is then an increase in service demand among customers.

In fact, service exports have risen more within manufacturing than within the service industry, and the claims that the manufacturing industry is in decline are somewhat misleading. The servicification does not appear to be a threat to Swedish industry. If anything, for manufacturing there is a link between using more services and a growing success on the export market.

From a policy perspective, the reluctance of some nations to facilitate service trade and people’s movement is unfortunate. A suitable measure would be to integrate, to a greater extent, goods and services in the trade liberalisation negotiations. Promoting the integration of immigrants on the labour market is another example of measures that could make it easier for firms to trade internationally.

Text: Lars Westberg
Foto: Anders Liljebring
Translation: Charlotta Hambre-Knight