Migration, knowledge diffusion and the comparative advantage of nations

To what extent are migrants a source of evolution of the comparative advantage of both their sending and receiving countries? We study the drivers of knowledge diffusion by looking at the dynamics of the export basket of countries. The main finding is that migration is a strong and robust driver of productive knowledge diffusion. In terms of their ability to induce exports, we find that an increase of only 65,000 people in the stock of migrants for the average country, is associated with about 15% increase in the likelihood of adding a new product to a country's export basket. We also find that, in terms of expanding the export basket of countries, a migrant is worth about US $30,000 of foreign direct investment. For skilled migrants these same figures become 15,000 people and US $160,000. In order to alleviate endogeneity concerns, we present results based on instrumenting for migration stocks using bilateral geographic and cultural variables.