The extensive and intensive trade-creation effects of business and social networks: evidence from Spanish industry-level data

This paper analyzes the effect of business and social networks on the extensive and intensive margins of trade. Using industry-level bilateral trade data for Spanish regions in the period 2004-2008, we show that both social and business networks have a very large trade-creating effect. We find that networks have a much stronger effect on the extensive than on the intensive margin of trade. This result points out that migrant and business ties mitigate particularly the fixed costs that firms have to incur when starting to trade with a new region. We show as well that migrants do not have to participate actively in the labor market to smooth the informal barriers to trade. However, when migrants participate in the labor market they help to mitigate particularly the information barriers in the industries they are employed. We also show that business groups created to diversify risks have a much lower trade-creation effect.