“Migrants know better”: migrants’ networks and FDI

Abstract

AbstractThe interrelations between trade, FDI and migrations have an important impact on the global economy that resulted in the golden age of globalization at first and in a process of slowbalization in the last decade. Against this background, this paper focuses on migrations and FDI and shows that migrant networks encourage cross-border investments. The presence of immigrants is likely to attract new FDI from their country of origin. FDI abroad, furthermore, are positively related to the presence of migrants, thanks to their knowledge of the two markets. We apply a multilevel mixed model to disentangle the hierarchical structure of the data in order to test the relations between FDI and (directional) migration flows. More specifically we test how and to what extent the structure of the international migrants’ network contributes to bilateral FDI flows, besides standard models. Results show that migrants’ networks exploit the information migrants have on both source and destination markets, and that a more diverse migrants’ community in investing countries lowers bilateral FDI.