Immigrant remittances and the venture investment environment of developing countries
- 583 Downloads
Despite the increasing importance of financial and social remittances to developing countries, their impact on home-country venture-investing environments has been largely overlooked. I develop a framework grounded in transaction costs economics and social knowledge theories to investigate relationships between remittances and home-country (1) capital availability, (2) new business creation, and (3) economic internationalization. My framework also accounts for individual and collective immigrant attributes that may moderate the impact of remittances on these alternative indicators of the venture investment environment. Analyses of immigrant remittances to 61 developing countries from 2002–2007 indicate that they increase general and more narrowly defined venture capital availability as well as broader openness to international trade. Remittances also increase new business start-up rates when the developing country's public sector is sufficiently small. Positive venture-funding effects of remittances are magnified when coming from immigrants living in highly concentrated communities, but are diminished when coming from highly educated immigrants. Overall, results suggest that developing-country immigrants of varying backgrounds play an important role in venture funding, founding and integration with the world economy.
Keywordsentrepreneurship immigrant remittances developing countries internationalization venture capital
This paper benefited from seminar presentations at the University of Minnesota's Carlson School of Management and Humphrey Institute for Public Affairs, Texas A&M's Mays Business School, Simon Fraser University's School of Management, Universidad Pablo Olavide's Departemento de Direccion Empresas, the University of Bath's School of Management, the European Business School, and the University of Warwick Business School. I received helpful comments, criticisms and suggestions from Daniel Ayala, Steven Block, Mark Casson, Lorraine Eden, Dan Forbes, Isaac Fox, Eric Gedajlovich, Steven Globerman, Aseem Kaul, Jongwook Kim, Robert Kudrle, Barbara Larraneta Gómez-Caminero, Marko Madunic, Alfie Marcus, Candace Martinez, Klaus Meyer, Steven Michael, Eric Nealy, Tom Roehl, Harry Sapienza, Myles Shaver, Mike Sher, Chirstian Stadler, Florian Taube, P. K. Toh, Joel Trachtman, Rosalie Tung, Andrew Van de Ven, Marc Ventresca, Richard Wang, Joel Waldfoegl, Isil Yavuz, Shaker Zahra and Bennet Zelner. I thank Chris Flegg, Joel Malen and Isil Yavuz for excellent research assistance. At the 2009 annual meetings of the Academy of Management, I presented an early version of this research with the same title, and co-authored with Isil Yavuz. The Carlson School Dean's Office provided valuable financial support. I am grateful to Mari Sako and staff at the Sainsbury Library of the University of Oxford's Saïd Business School for time and resources helpful in revising this paper during sabbatical leave in 2010–2011. All errors are mine.
- Adams, R. 2003. International migration, remittances, and the brain drain: A study of 24 labor-exporting countries. World Bank Policy Research Working Paper 3069, World Bank, Washington, DC.Google Scholar
- Aggarwal, R., Demirgüç-Kunt, A., & Martínez Pería, M. 2010. Do remittances promote financial development? Journal of Development Economics, 96 (2): 255–264.Google Scholar
- Amuedo-Dorantes, C., Bansak, C., & Pozo, S. 2004. On the remitting patterns of immigrants: Evidence from Mexican survey data. Paper presented at the Payments in the Americas Conference. Federal Reserve Bank of Atlanta, 7–8 October.Google Scholar
- Apinard, A., Barth, J., Lee, C., Li, T., Lu, W., Malaiyandi, S., McCarthy, D., Phumiwasana, T., Sui, S., Trimbath, S., & Yago, G. 2002–2008. Capital access index 2001–2007, (various annual issues written by combinations of co-authors listed above and published from 2002 to 2008). Los Angeles, CA: Milken Institute.Google Scholar
- CIA. 2005. CIA world factbook, (field listing–legal system) Washington, DC: Central Intelligence Agency.Google Scholar
- Dişbudak, C. 2004. Transnational and local entrepreneurship. In T. Faist & E. Ozveren (Eds), Transnational social spaces: 143–162. Farnham: Ashgate.Google Scholar
- Docquier, F., & Marfouk, A. 2006. International migration by education attainment in 1990–2000. In C. Orden & M. Schiff (Eds), International migration, remittances and the brain drain. Washington, DC: World Bank.Google Scholar
- Fafchamps, M. 2001. Networks, communities and markets in sub-Saharan Africa: Implications for firm growth and investment. Journal of African Economies, 10 (2): 108–141.Google Scholar
- Freedom House. 2010. Country rankings of political rights and civil liberties. Washington, DC: Freedom House.Google Scholar
- Gamlen, A. 2008. Why engage diasporas? COMPAS Working Paper WP-08-63, ESRC Centre on Migration Policy and Society, University of Oxford.Google Scholar
- Ghosh, B. 2006. Migrants’ remittances and development: Myths, rhetoric, and realities. Geneva: International Organization for Migration.Google Scholar
- IFAD. 2007. Sending money home: Worldwide remittance flows to developing countries. Rome: United Nations Fund for Agricultural Development, Available at http://www.ifad.org/remittances/maps/index.htm.
- IFAD. 2009. Sending money home to Africa: Remittance markets, enabling environment and prospects. Rome: United Nations International Fund for Agricultural Development, Available at http://www.ifad.org/remittances/pub/money_africa.pdf.
- IMF. 2009. International transactions in remittances: Guide for compilers and users. Washington, DC: International Monetary Fund.Google Scholar
- Kaufmann, D., Kraay, A., & Mastruzzi, A. 2008. Worldwide governance indicators: 1996–2007. World Bank Policy Research Working Paper 4654, World Bank, Washington, DC.Google Scholar
- Kilic, T., Carletto, G., Davis, B., & Zezza, A. 2007. Investing back home: Return migration and business ownership in Albania. World Bank Policy Research Working Paper 4366, World Bank, Washington, DC.Google Scholar
- Kirzner, I. 1997. Entrepreneurial discovery and the competitive market process: An Austrian approach. Journal of Economic Literature, 35 (1): 60–85.Google Scholar
- Moneygram. 2010. Remittance trends and the role of money transfer organizations, (Presentational materials dated 20 July) Minneapolis, MN: Moneygram International.Google Scholar
- Nyberg-Sørenson, N. 2004. The development dimension of migrant transfers. DIIS Working Paper No. 2004/16, Danish Institute for International Studies, Copenhagen, Denmark.Google Scholar
- Parsons, C., Skeldon, R., Walmsley, T., & Winters, T. 2007. Quantifying international migration: A database of bilateral migrant stocks. World Bank Policy Research Working Paper 4165, World Bank, Washington, DC.Google Scholar
- Polanyi, M. 1966. The tacit dimension. London: Routledge & Kegan Paul Ltd.Google Scholar
- Qorchi, M., Munzele-Maimbo, S., & Wilson, J. 2003. Internal funds transfer systems: An analysis of the informal hawala system. IMF Occasional Paper 222, International Monetary Fund, Washington, DC.Google Scholar
- Ratha, D. 2003. Workers’ remittances: An important and stable source of external development finance. Global development finance: Striving for stability in development finance: 157–175. Washington, DC: World Bank.Google Scholar
- Reinke, J. 2007. Remittances in the balance of payments framework: Current problems and forthcoming improvements, Seminar on Remittance Statistics Paper, International Monetary Fund, Washington, DC. Available at http://www.imf.org/external/np/sta/bop/pdf/rem.pdf.
- Saxenian, A. 1999. Silicon Valley's new immigrant entrepreneurs. San Francisco, CA: Public Policy Institute of California.Google Scholar
- Shane, S., & Venkataraman, S. 2000. The promise of entrepreneurship as a field of research. Academy of Management Review, 25 (1): 217–226.Google Scholar
- StataCorp. 2009. Stata statistical software: Release 11.0. College Station, TX: Stata Corporation.Google Scholar
- United Nations. 2004. Trends in total migrant stock 1960–2000, 2003 revision. New York: United Nations Department of Economic and Social Affairs.Google Scholar
- United Nations. 2008. World population prospects: The 2008 revisions – highlights. Population Division Working Paper No. ESA/P/WP0.210, United Nations Department of Economic and Social Affairs, New York.Google Scholar
- Williamson, O. 1985. The economic institutions of capitalism. New York: Free Press.Google Scholar
- World Bank. 2006. Global economic perspectives: Economic implications of remittances and migration. World Bank Report No. 34320. Washington, DC: World Bank.Google Scholar
- World Bank. 2010. World development indicators 2010. Washington, DC: World Bank.Google Scholar