How does governance factors influence the trade impact of migration and capital flows in the EU?

• Published date: 01 May 2021
• Author: Festus F. Adedoyin,Abdulwahab A. Bello,Isah F. Abubakar,Terhemen J. Agabo
• Date: 01 May 2021
• DOI: http://doi.org/10.1002/pa.2207

ACADEMIC PAPER

How does governance factors influence the trade impact of

migration and capital flows in the EU?

Festus F. Adedoyin

1

| Abdulwahab A. Bello

2

| Isah F. Abubakar

3

|

Terhemen J. Agabo

4

1

Department of Accounting, Finance and

Economics, Bournemouth University,

Bournemouth, UK

2

Department of Economics, Federal

University, Gashua, Gashua, Yobe State,

Nigeria

3

Department of Economics and Development

Studies, Federal University Dustin-Ma, Dustin-

Ma, Nigeria

4

Department of Economics, University of

Ibadan, Ibadan, Nigeria

Correspondence

Terhemen J. Agabo, Department of

Economics, University of Ibadan, Ibadan,

Nigeria.

Email: jusagabo@gmail.com

Migration has been a topical issue in the European Union. The Successful exit of the

United Kingdom from the European Union and the movement of refugees from the

Middle East have drawn a lot of attention to the topic. This study investigates the

relationships between trade, governance performance, and migration across 23 Euro-

pean countries from 1998 to 2017. Findings from our sys-GMM regression reveal

that migration is negatively related to trade while the relationship between Gover-

nance and trade is majorly negative. While real GDP and FDI spur the level of trade

openness. It is therefore recommended that; the authorities in the EU review and

improve regulatory institutions in the region to enable the growth of the export sec-

tor in the region. Also, migrants must be integrated into the EU economy to enable

them to contribute high skilled labor services and innovative ideas which will lead to

growth in economic activities, especially in the export sector.

1|INTRODUCTION

There has been a rising demand for foreign workers as an input in

economic production in advanced economies especially. This reason

has caused a spike in global migration and the European Union has

been one of the migrant favorite destinations. The increasing level of

globalization and communications technology has also facilitated

migration activities, linking people to information and opportunities

such as paid employment away from their home countries.

While the migration to Europe can be analyzed from several per-

spectives. This study focuses on the economic contribution of

migrants to the European Union, especially as regards the trade per-

formance of the regions. Worldwide, migration is often viewed as an

advantage to the receiving economy as it provides labor which

enhances economic productivity. Another case for migration and

trade is that migrants reduce trade frictions between the host country

and their home country, hence trade relations are improved. To this

extent, host countries go a long way to provide a good environment

for migrants by making it possible for skilled migrants to take employ-

ment in their countries as well as providing accommodation for refu-

gees and asylum seekers. It is therefore mandatory to empirically

analyze the role of migrants in trade flows of the host countries.

We have had different studies that examined the effect of migra-

tion on trade. The connection between migrants and hosts enhances

trade volume via enhanced information access. The argument is that

eradication of trade restrictions and seeking or scouting charges

attached to market interactions is a significant boost to trade volume

(Balsalobre-Lorente, Driha, Bekun, & Adedoyin, 2020; Hajko, Sebri,

Al-Saidi, & Balsalobre-Lorente, 2018; Rauch & Trindade, 2002). Fel-

bermayr and Toubal (2012) asserted that migrants boost trade rela-

tions with their hosts in these ways: (a) Migrants help host countries

to overcome trade restrictions that have to do with traditions, cus-

toms, language are tackled, and so business links are established.

Migrants also help to avail of qualitative information on sales abroad

and scouting opportunities. (b) As more satisfaction is derived from

the domestic products by migrants, trade is enhanced. Similarly, when

information asymmetry is removed it results in a strong trade link.

On the other hand, the quality of governance in the European

Union is much favorable compared to other regions like Asia and

Africa. Across EU states, there are observed differences in the ability

of governments to put in place objective, effective, efficient and

corrupt-free policies (European Commission, 2018). In discussions on

the quality of governance across EU states comparisons are made

between Eastern and Western EU states. For instance, in 2017 it was

Received: 28 April 2020 Revised: 21 May 2020 Accepted: 23 May 2020

DOI: 10.1002/pa.2207

J Public Affairs. 2021;21:e2207. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons, Ltd 1of10

https://doi.org/10.1002/pa.2207