The causal effect of trade on migration: Evidence from countries of the Euro-Mediterranean partnership

• We investigate the causal relationship of bilateral exports on bilateral migration.
• We use flows from Mediterranean Third Countries to the European Union countries.
• We use a gravitational model over the period 1970-2000 using both OLS and 2SLS.
• We use tariffs and bilateral exchange rate volatility as instruments for exports.
• Free trade is not an effective policy to mitigate migration in the short run.

In the attempt to reduce migration pressure, since 1995, the European Union has been planning to establish a free trade area with developing countries bordering the Mediterranean Sea. The process is still ongoing. Our paper tests whether it is likely to be an effective policy. We estimate a gravitational model of bilateral migrations on bilateral exports from the Mediterranean Third Countries (South) to the European Union (North) over the period 1970–2000, using different specifications. We find, in line with most of the literature, a significantly positive correlation (called “complementarity”) between exports and migrations from the South to the North. Then we go one step further, trying to solve the potential endogeneity problem using average trade tariffs and bilateral exchange rate volatility as instruments for trade. Based on the OLS as well as the 2SLS results, liberalizing trade in the area of the Euro-Mediterranean partnership does not seem to be an effective policy to mitigate the migration flows, at least in the short run.