Abstract
Does immigration affect foreign direct investment? Existing studies on immigration and FDI have all looked at aggregate flows at the national level, arguing that immigrant networks lower the risk of foreign investment through increased information flows and a built in market. However, these national-level studies suffer from identification problems since many of the factors that attract immigrants also attract FDI. This study improves upon identification by looking at the regional distribution of both FDI and immigration from 10 source countries to the 50 US states. Using a unique measure of immigrant network size in each state, I find that immigration is not only positively correlated with FDI, it tends to lead it as well. Comparing a state with an average sized immigrant network to one with a network twice as large, I estimate that the stronger network state will get on average 20 more foreign-owned affiliates opening per year, an effect that is quite persistent over time. On average, more skilled immigrant communities attract more FDI, while the pull effect of immigration on FDI also increases with immigrant ties to native countries and with immigrant influence in local communities. These results suggest that immigration creates a positive externality in foreign investment that must be considered when assessing the costs and benefits of labor mobility.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Aroca P, Maloney WF (2005) Migration, trade, and foreign direct investment in Mexico. World Bank Econ Rev 19(3): 449–472
Blonigen B (2005) A review of the empirical literature on FDI determinants. Atl Econ J 33: 383–403
Buch CM, Kleinert J, Toubal F (2006) Where enterprises lead, people follow? Links between migration and FDI in Germany. Eur Econ Rev 50(8): 2017–2036
Card D (2001) Immigrant inflows native outflows and the local labor market impacts of higher education. J Labor Econ 19(1): 22–64
Clemens M, Williamson J (2000) Where did British foreign capital go? Fundamentals, failures, and the Lucas paradox: 1870–1913. NBER Working Paper No. 8028
Flandreau M (2006) Home biases, nineteenth century style. J Eur Econ Assoc 4(3): 634–643
Friedman J, Gerlowski D, Silberman J (1992) What attracts foreign multinational corporations? Evidence from branch plant location in the United States. J Region Sci 32: 403–418
Girma S, Yu Z (2002) The link between immigration and trade: evidence from the UK. Weltwirtschaftliches Archiv 138(1): 115–130
Gould D (1994) Immigration links to the home country: empirical implications for US bilateral trade flows. Rev Econ Stat 76(2): 302–316
Greif A (1993) Contract enforceability and economic institutions in early trade: the Maghribi Traders’ coalition. Am Econ Rev 83(3): 525–548
Groznik P (2003) Immigration and international financial flows. Indiana University Working Paper
Guiso L, Sapienza P, Zingales L (2009) Cultural biases in economic exchange. Q J Econ 124(3): 1095–1131
Head K, Ries J (1998) Immigration and trade creation: econometric evidence from Canada. Can J Econ 31(1): 47–62
Javorcik B, Özden C, Spatareanu M, Neagu C (2011) Migrant networks and foreign direct investment. J Dev Econ 94(2): 231–241
Kim C-U (2006) Immigration, FDI, and international trade. University of Oregon Working Paper
Kugler M, Rapoport H (2005) Skilled emigration, business networks, and foreign direct investment. CESifo Working Paper No. 1455
List JA (2001) US county-level determinants of inbound FDI: evidence from a two-step modified count data model. Int J Ind Organ 19(2): 953–973
Lucas RE Jr (1990) Why doesn’t capital flow from rich to poor countries. Am Econ Rev 80(2): 92–96
Saxeenian A (2001) Bangalore, the Silicon Valley of India? CREDPR Working Paper No 91, Stanford University
Stark O (2004) Rethinking the brain drain. World Dev 32(1): 15–22
Woodward D (1992) Locational determinants of Japanese manufacturing start-ups in the United States. South Econ J 58: 690–708