International Migration and Foreign Investment in Host Communities

• In Event: Emigrant and Diaspora Politics

Abstract

How does international migration shape foreign direct investment (FDI) flows? Existing research shows that migrants from developing countries channel FDI to their home countries by helping investors overcome information asymmetries. In recent years, outward FDI from developing countries like China and India – traditionally migrant-sending locales – has increased. Does migration play a role in this new investment? We argue that, under certain conditions, migrants facilitate FDI into their host communities. Migrants inform co-ethnic investors about local business opportunities and are a source of human capital for compatriot firms, encouraging investment. However, migrant-specific sources of political risk, such as support for anti-immigrant politicians and the passage of restrictionist immigration legislation, deter immigrants from encouraging FDI by their co-ethnics. Using project-level data on FDI to the United States, bilateral state-level data on international migrant stocks, and state-level data on immigration policy, we find empirical support for our argument. Migrants encourage FDI, but only in political environments that are welcoming toward foreigners. Our argument and findings highlight a hidden economic benefit of international migration, which could grow as outward FDI from migrant-sending countries in the Global South continues to increase.

Authors

• Benjamin Clay Helms, Texas A&M University

• David Leblang, University of Virginia