6533b835fe1ef96bd129f4ca

RESEARCH PRODUCT

Homeward Bound FDI: Are Migrants a Bridge over Trouble Finance?

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Migrants can lower cross-border investment barriers, help investors by providing information about their homeland and reduce transaction costs by sharing expertise on regulations, customs and procedures. In addition to generating these well-known networking effects, migrants can also provide valuable information about local finance, thereby easing the credit constraints foreign investors faced during the 2007 financial crisis. This paper sheds new light on the underlying mechanisms through which migration may affect foreign investment in the migrant's homeland by distinguishing between the effects on FDI's intensive and extensive margins. Gravity estimates for 140 countries for the period 2003–2012 suggest that migrants exert a positive effect on bilateral FDI. However, financial constraints moderate this effect, primarily through the extensive margin. Additionally, quantile regression reveals that the interaction between migration and credit constraints is significant only for the lower levels of FDI. Our findings contribute to a better understanding of the interplay among migration, financial constraints and FDI. The authors gratefully acknowledge financial support from the Ministerio de Economía y Competitividad (ECO2011-27619; ECO2014-58975-P; ECO2015-68057-R), Pla de Promociói de la Inves- tigació, Universitat Jaume I (P1.1B2013-22) and from the Catholic University of Valencia (PRUCV/2015/652). They are also indebted to valuable comments from an anonymous referee as well as Frederic Docquier, Amandine Aubry, Farid Toubal and the participants at the 4th Meeting of International Economics organized by the Instituto de Economía Internacional (Universitat Jaume I of Castellón, September 2015)