Migrant Tastes and Merchandise Trade: Evidence From China

ABSTRACT Existing studies on domestic trade tend to ignore differences in consumer taste. This study embeds migrant taste bias into a structural gravity model. Market tastes vary according to migrant taste biases. Using data on interprovincial manufacturing trade and migration in China, this study estimates home bias in migrants' tastes. The results indicate that, for each dollar of total expenditure, consumers spend 46 cents more on products from their home province than a hypothetical, unbiased consumer would, all else equal. The migrant taste bias is robust, even after controlling for assimilation effects and alternative non‐preference mechanisms. The taste bias could explain the trade bias more than the trade cost. Counterfactual experiments show that anti‐migration policies significantly impede trade with migrants' provinces of origin, and that migrants' taste assimilation improves local consumers' welfare.