Working Paper | 2015

Resident Networks and Firm Trade

by Lauren Cohen, Umit G. Gurun and Christopher J. Malloy

Abstract

We demonstrate that simply by using the ethnic makeup surrounding a firm's location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a large resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade. We also show that firms are more likely to acquire target firms, and report increased segment sales, in countries to which they are connected. Firms that exploit their local networks also see significant increases in future sales growth and profitability. In sum, our results document a surprisingly large impact of immigrants' role as economic conduits for firms in their new countries.

Keywords: Information networks; trade links; firm behavior; Information; Networks; Ethnicity Characteristics; Residency Characteristics; Business Headquarters; Trade; Social and Collaborative Networks;

Citation:

Cohen, Lauren, Umit G. Gurun, and Christopher J. Malloy. "Resident Networks and Firm Trade." Working Paper, May 2015.