American Political Science Review

Research Article

Familiarity Breeds Investment: Diaspora Networks and International Investment

DAVID LEBLANGa1 c1

a1 University of Virginia

Abstract

What explains cross-national patterns of international portfolio and foreign direct investment (FDI)? While existing explanations focus on the credibility of a policy maker's commitment, we emphasize the role of diaspora networks. We hypothesize that diaspora networks—connections between migrants residing in investing countries and their home country—influence global investment by reducing transaction and information costs. This hypothesis is tested using dyadic cross-sectional data for both portfolio and FDI. The findings indicate that even after controlling for a multitude of factors, disapora networks have both a substantively significant effect and a statistically significant effect on cross-border investment.

Correspondence:

c1 David Leblang is J. Wilson Newman Professor of Governance, Department of Politics, University of Virginia, P.O. Box 400787, Charlottesville, VA 22904 (leblang@virginia.edu).

Footnotes

This article originally circulated under the title “Diaspora Bonds and Cross-Border Capital.” I am grateful to Zane Kelly and Jessica Teets for outstanding research assistance. Lee Alston, Ben Ansell, Andy Baker, Bernd Beber, William Bernhard, David Brown, Tim Büthe, Steve Chan, Rafaela Dancygier, Jennifer Fitzgerald, John Freeman, Daniel Gingerich, Jude Hays, Nathan Jensen, Joseph Jupille, Moonhawk Kim, Robert McKnown, Sonal Pandya, Tom Pepinsky, Andy Rose, Idean Salehyan, Kathryn Sikkink, David Singer, Andy Sobel, Enrico Spolaore, Michael Tomz, Romain Wacziarg, and Jennifer Wolak provided helpful comments and/or generously shared their data. I am also grateful to Roger, Keith, Pete, and John for helping me get through extensive revisions. Replication materials are available at http://journals.cambridge.org/psr2010008. The research was funded in part by a developmental grant from the National Institute of Child Health and Human Development (NICHD)–funded University of Colorado Population Center (grant R1 HD51146).

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