We examine how, and to what extent, migrants in a host country attract foreign direct investment (FDI) from firms based in their country of origin (CO). Introducing the notion of institutional affinity, we argue that increased institutional affinity and increased connectedness of institutional environments of migrants’ CO and country of residence, make a location attractive to CO firms. Empirical analysis of FDI and migration panel data shows that in addition to the traditional factors influencing FDI patterns, there is a collective migrant effect on FDI, and this effect is statistically significant and economically meaningful for migrants from developing countries.
The Department of Economic and Social Affairs at the United Nations estimates that 258 million people are living outside their country of birth worldwide as of 2017, up from 220 million in 2010 and 173 million in 2000 (UnitedNations, 2017). High-income countries host approximately two-thirds of all foreign-born population. As of 2017, 64% of all foreign-born population worldwide—165 million people—- lived in high-income countries (UnitedNations, 2017). The increased number of migrants (aka persons born in one country, but living permanently in another) and non-immigrants (or transient migrants as we call them) in the firms of many developed countries have prompted scholars to examine the effect of migration on the cross-border firm activities at micro (Foley & Kerr, 2012; Hernandez, 2014; Kerr, 2008; Shukla & Cantwell, 2016; Zaheer, Lamin, & Subramani, 2009) and macro levels (Buch, Kleinert, & Toubal, 2006; Javorcik, Özden, Spatareanu, & Neagu, 2011; Kugler & Rapoport, 2005). From a global strategy perspective, migrants can be assets for firms seeking to expand overseas, as their idiosyncratic knowledge and prior home country experience (Shukla & Cantwell, 2016) can reduce the need for learning through operational experience in a foreign location (Johanson & Vahlne, 1977). So far, studies that have specifically examined the migration-foreign direct investment (FDI) link have emphasized the knowledge carrier channel as the mechanism by which migrants influence FDI activities between their country of origin (CO) and country of residence (CR). This stream of literature has ignored the notion that over time migrants also bring about changes in the institutional environment of a location, which makes the location less foreign and more attractive for investing firms. Focusing on this locational aspect, in this study, we seek an answer to the following question—How and to what extent do foreign-born workers in a host country exert gravitational pull on the inward FDI activities of firms from their CO? We view the institutional environment as one that “includes political institutions such as the regime type, the national structure of policymaking and the judicial system, economic institutions such as the structure of the national factor markets and the terms of access to international factors of production and socio-cultural factors such as informal norms, customs, mores and religions” (Mudambi & Navarra, 2002), as well as the social, economic, educational, and legal organizations that are the creators and gatekeepers of institutions in the context of a country.