Homeward bound FDI: Are migrants a bridge over troubled finance?

Abstract

Migrants can lower cross-border investment barriers, help investors by providing information about their homeland and reduce transaction costs by sharing expertise on regulations, customs and procedures. In addition to generating these well-known networking effects, migrants can also provide valuable information about local finance, thereby easing the credit constraints foreign investors faced during the 2007 financial crisis. This paper sheds new light on the underlying mechanisms through which migration may affect foreign investment in the migrant's homeland by distinguishing between the effects on FDI's intensive and extensive margins. Gravity estimates for 140 countries for the period 2003-2012 suggest that migrants exert a positive effect on bilateral FDI. However, financial constraints moderate this effect, primarily through the extensive margin. Additionally, quantile regression reveals that the interaction between migration and credit constraints is significant only for the lower levels of FDI. Our findings contribute to a better understanding of the interplay among migration, financial constraints and FDI.

International talent inflow and R&D investment: Firm-level evidence from China

“…Since the seminal work of Gould (1994), extensive research has examined the positive relationship between trade, FDI, and international migration (Rauch and Trindade, 2002;Bastos and Silva, 2012;Cuadros et al, 2016;Tomohara, 2017). Most of these studies have focused on the role of immigration in transferring transnational business information.…”

“…89%. 2 Meanwhile, a substantial literature has documented that immigration can exert multiple economic impacts on the receiving countries, such as on trade (Gould, 1994;Rauch and Trindade, 2002;Bastos and Silva, 2012), on foreign direct investment (FDI) (Cuadros et al, 2016;Tomohara, 2017), and on the labor market (Edo and Toubal, 2017;Martins et al, 2018).…”

The International Movements of Capital and Labour: A Study of Foreign Direct Investment and Migration Flows

“…When it comes to the link between immigration and FDI, Gould (1994) shows that higher emigration rate from any sending country usually leads to a higher inbound FDI, which we may substantiate with such reasons as networking, social links, or lower communication costs (Le & Tran-Nam, 2018;Cuadros et al, 2016;Simone & Manchin, 2012;Combes et al, 2005). Buch et al (2006) examine the relationship between migration and FDI in Germany.…”

“…Another important current of studies on migration explores the relationship between FDI and migrant networks (Cuadros et al, 2016;Javorcik et al, 2011;Docquier & Lodigiani, 2010;Buch et al, 2006;Schiff, 1994), which highlights the growing relationship between these variables over time. The network migration theory addresses the key role of personal relationships between immigrants and non-immigrants.…”

“…Here, FDI and immigration can be perceived as substitutes. Let us note that Metelski and Mihi-Ramirez (2015) foreground the bidirectionality of labour and capital flows, so that an "investor country" also is a sending country, especially when migrants manage to create networks over time, facilitating the flow of information about business opportunities in their countries of origin while reducing transnational costs (Cuadros et al, 2016;Jayet & Marchal, 2016;Simone & Manchin, 2012;Flisi & Murat, 2011;Docquier & Lodigiani, 2010).…”