Asylum Policies, International Tensions and Trade Flows : Evidence From the EU

In this paper, we provide evidence of the impact of refugee flows on international trade in the short run. Using panel data on asylum applications in the EU from 2002 to 2015, we develop a novel measure of interstate tensions based on refugee admission rates. Humanitarian conditions in the origin country explain little of the variation in approval rates, asylum policies being often used by governments as a foreign policy tool. Specifically, countries are more likely to accept refugees from rival countries. We then study the impact of this measure on trade flows between the EU and the rest of the world and address endogeneity concerns by exploiting the variation in asylum policy across European countries as an instrumental variable. We find that a one percentage point change in our measure entails a drop in EU imports of 1.5% to 5.5% from one year to the next. This points towards European countries imposing a double sanction to rival countries: a political one through asylum policies and an economic one