Ethnic Chinese Networks in International Trade

Ethnic Chinese networks, as proxied by the product of ethnic Chinese population shares, are found in 1980 and 1990 to have increased bilateral trade both within Southeast Asia and for other country pairs. Their effects within Southeast Asia are much greater for differentiated than for homogeneous products, while for other country pairs their effects are neither economically nor statistically significantly different across commodity groups. We interpret these and other, complementary findings as showing that (1) where ethnic Chinese communities are relatively large fractions of their countries' populations and have relatively numerous direct connections across international borders, they facilitate international trade primarily by helping to match international buyers and sellers in characteristics space, and (2) ethnic Chinese communities that are small fractions of their countries' populations are close-knit and facilitate international trade mainly by enforcing community sanctions that deter opportunistic behavior. The smallest estimated increase in bilateral trade in differentiated products within Southeast Asia attributable to ethnic Chinese networks exceeds 150 percent, suggesting that the informal trade barriers these networks help to overcome are economically important.