Skip to main content

Familiarity Breeds Investment: Diaspora Networks and International Investment


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.

Corresponding author
David Leblang is J. Wilson Newman Professor of Governance, Department of Politics, University of Virginia, P.O. Box 400787, Charlottesville, VA 22904 (
Hide All
Alfaro L., Kelemli-Ozcan S., and Volosovych V.. 2006. Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation. Cambridge, MA: Harvard Business School.
Bandelj Nina. 2002. Embedded Economies: Social Relations as Determinants of Foreign Direct Investment in Central and Eastern Europe. Social Forces 81 (2): 411–44.
Bandelj Nina. 2007. From Communists to Foreign Capitalists: The Social Foundations of Foreign Direct Investment in Postsocialist Europe. Princeton, NJ: Princeton University Press.
Blonigen Bruce A., and Wang Miao G.. 2005. “Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies.” In Does Foreign Direct Investment Promote Development?, eds. Moran Theodore H., Graham Edward M., and Blomström Magnus. Washington, DC: Peterson Institute for International Economics, 221–44.
Borjas George J. 1999. “Immigration and Welfare Magnets.” Journal of Labor Economics 17 (4): 607–37.
Borjas George J., Freeman Richard B., and Katz Lawrence F.. 1996. “Searching for the Effect of Immigration on the Labor Market.” American Economic Review 86 (2): 246–51.
Büthe Tim, and Milner Helen V.. 2008. “The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements?American Journal of Political Science 52 (4): 741–62.
Cameron A. Colin, Gelbach Jonah, and Miller Douglas. 2006. “Robust Inference with Multi-Way Clustering.” National Bureau of Economic Research (NBER) Technical Working Paper 327.
Cavalli-Sforza Luigi L., Menozzi Paolo, and Piazza Alberto. 1994. The History and Geography of Human Genes. Princeton, NJ: Princeton University Press.
Choi Inbom. 2003. “Korean Diaspora in the Making: Its Current Status and Impact on the Korean Economy.” In The Korean Diaspora in the World Economy: Special Report 15, eds. Bergsten C. Fred and Choi Inbom. Washington, DC: Peterson Institute for International Economics, 929.
Coval Joshua D., and Moskowitz Tobias J.. 1999. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance 54: 2045–73.
Coval Joshua D., and Moskowitz Tobias J.. 2001. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy 109: 811–41.
Desmet Klaus, Le Breton Michel, Ortin Ignacio Ortuno, and Weber Shlomo. 2007. “Stability of Nations and Genetic Diversity.” Working paper. Universidad Carlos III.
Eichengreen Barry, and Luengnaruemitchai Pipat. 2006. Bond Markets as Conduits for Capital Flows: How Does Asia Compare? National Bureau of Economic Research (NBER) Working Paper 12408.
Elton E., Gruber M., Brown S., and Goetzmann W.. 2003. Modern Portfolio Theory and Investment Analysis. New York: John Wiley & Sons.
Freinkman L. 2002. Role of the Diasporas in Transition Economies: Lessons from Armenia. Washington, DC: World Bank.
French K., and Poterba J.. 1991. “Investor Diversification and International Equity Markets.” American Economic Review 81: 222–26.
Gamlen Alan. 2008. “The Emigration State and the Modern Geopolitical Imagination.” Political Geography 27: 840–56.
Giuliano Paolo, Spilimbergo Antonio, and Tonon Giovanni. 2006. “Genetic, Cultural and Geographical Distances.” IZA Discussion Paper 2229.
Goldstein Judith, Rivers Douglas, and Tomz Michael. 2007. “Institutions in International Relations: Understanding the Effects of the GATT and WTO on World Trade.” International Organization 61: 3767.
Gould D.M. 1994. “Immigrant Links to the Home Country: Empirical Implications for US Bilateral Trade Flows.” Review of Economics and Statistics 76 (2): 302–16.
Granovetter Mark S. 1973. “The Strength of Weak Ties.” American Journal of Sociology 78 (6): 1360–80.
Greif Avner. 1989. “Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders.” Journal of Economic History 49 (4): 8857–82.
Greif Avner. 1993. “Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders’ Coalition.” American Economic Review 83 (3): 525–48.
Grinblatt M., and Keloharju M.. 2001. “How Distance, Language, and Culture Influence Stockholdings and Trades.” Journal of Finance 56 (3): 1053–74.
Guiso L., Sapienza P., and Zingales L.. 2005. Cultural Biases in Economic Exchange. Chicago: The University of Chicago.
Habib Mohsin, and Zurawicki Leon. 2002. “Corruption and Foreign Direct Investment.” Journal of International Business Studies 33 (2): 291307.
Head K., and Reis J.. 1998. “Immigration and Trade Creation: Econometric Evidence from Canada.” Canadian Journal of Economics 31 (1): 4762.
Howard M.M. 2009. The Politics of Citizenship in Europe. Cambridge: Cambridge University Press.
Huberman Gur. 2001. “Familiarity Breeds Investment.” Review of Financial Studies 14 (3): 659–80.
Jensen N. 2003. “Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment.” International Organization 57 (3): 587616.
Kapur D. 2001. “Diasporas and Technology Transfer.” Journal of Human Development 2 (2): 265–86.
Kapur D., and McHale J.. 2006. Give Us Your Best and Brightest: The Global Hunt for Talent and Its Impact on the Developing World. Washington, DC: Center for Global Development.
Keck M.E., and Sikkink K.. 1998. Activists beyond Borders: Advocacy Networks in International Politics. Ithaca, NY: Cornell University Press.
Keohane Robert O., and Nye Joseph S.. 1974. “Transgovernmental Relations and International Organizations.” World Politics 27 (1): 3962.
Kleinman E. 1996. Jewish and Palestinian Diaspora Attitudes to Philanthropy and Investment. Tel Aviv: Hebrew University Press.
Knigge Pia. 1998. “The Ecological Correlates of Right-Wing Extremism in Western Europe.” European Journal of Political Research 34 (2): 249–79.
Kogut Bruce, and Singh Harbir. 1988. “The Effect of National Culture on the Choice of Entry Mode.” Journal of International Business Studies 19 (3): 411–32.
Lane Philip R. 2005. “Global Bond Portfolios and EMU,” Working Paper No. 553, European Central Bank.
Lane Philip R., and Milesi-Ferretti Gian Maria. 2004. ”International Investment Patterns,” Working Paper #WP/04/134. International Monetary Fund.
Leblang David. 2009a. “Another Link in the Chain: Migrant Networks and International Investment.” Presented at the World Bank Conference on Diasporas and Development, Washington, DC.
Leblang David. 2009b. “Harnessing the Diaspora: Dual Citizenship Rights and Global Remittances.” University of Virginia. Manuscript.
Leuth Erik, and Ruiz-Arranz Marta. 2006. “A Gravity Model of Workers’ Remittances.” IMF Working Paper 06/290.
Lewis Karen K. 1999. “Trying to Explain Home Bias in Equities and Consumption.” Journal of Economic Literature 37 (2): 571608.
Loungani Prakash, Mody Ashoka, and Razin Assaf. (2002). “The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations.” Scottish Journal of Political Economy 49 (5): 526–43.
North D.C. 2005. Understanding the Process of Economic Change. Princeton, NJ: Princeton University Press.
Organisation for Economic Co-operation and Development (OECD). 2006. OECD Migration Outlook 2006. Paris: OECD.
Portes Richard, and Rey Helene. 2005. “The Determinants of Cross-Border Equity Flows.” Journal of International Economics 65 (2): 269–96.
Portes Richard, Rey Helene, and Oh Yonghyup. 2001. “Information and Capital Flows: The Determinants of Transactions in Financial Assets.” European Economic Review 45 (4–6): 783–96.
Ratha Dilip, and Shaw William. 2007. “South–South Migration and Remittances.” World Bank Working Paper 102.
Rauch J.E., and Casella A.. 2001. Networks and Markets. New York: Russell Sage.
Rauch J.E., and Trindade V.. 2002. “Ethnic Chinese Networks in International Trade.” Review of Economics and Statistics 84 (1): 116–30.
Rose Andrew, and Spiegel Mark. 2008. “Non-Economic Engagement and International Exchange: The Case of Environmental Treaties.” Haas School of Business. Manuscript.
Sarkissian Sergei, and Schill Michael J.. 2004. “The Overseas Listing Decision: New Evidence of Proximity Preference.” Review of Financial Studies 17 (3): 769809.
Saxenian A. 2002. Local and Global Networks of Immigrant Professionals in Silicon Valley. San Francisco: Public Policy Institute of California.
Saxenian A. 2006. The New Argonauts: Regional Advantage in a Global Economy. Cambridge, MA: Harvard University Press.
Schulte Bettina. 2008. “Second Generation Entrepreneurs of Turkish Origin in Germany: Diasporic Identity and Business Engagement.” Centre on Migration, Citizenship and Development (COMCAD) Arbeitspapiere – Working Paper 56.
Schüttler Kirsten. 2007. The Moroccan Diaspora in Germany: Its Contribution to Development in Morocco. Eschborn, Germany: Federal Ministry for Economic Cooperation and Development.
Shain Yossi, and Barth Aharon. 2003. “Diasporas and International Relations Theory.” International Organization 57 (3): 449–79.
Sheffer G. 2003. Diaspora Politics: At Home Abroad. Cambridge: Cambridge University Press.
Siegel Jordan, Licht Amir, and Schwartz Shalom. 2008. “Egalitarianism and International Investment.” Harvard Business School. Manuscript.
Singer David Andrew. 2010. “Migrant Remittances and Exchange Rate Regimes in the Developing World.” American Political Science Review 104 (2): 307–23.
Slaughter A. 2004. A New World Order. Princeton, NJ: Princeton University Press.
Spolaore Enrico, and Wacziarg Romain. 2008. “The Diffusion of Development.” Working paper. University of California at Los Angeles.
Stark O., Helmenstein C., and Prskawetz A.. 1998. “Human Capital Depletion, Human Capital Formation, and Migration: A Blessing or a ‘Curse’?Economic Letters 60 (3): 363–67.
Tadesse Bedassa, and White Roger. 2010. “Does Cultural Distance Hinder Trade in Goods? A Comparative Study of Nine OECD Member Nations.” Open Economies Review 21 (2): 237–61.
Tesar Linda, and Werner Ingrid. 1995. “Home Bias and High Turnover.” Journal of International Money and Finance 14 (4): 467–92.
Uzzi Brian. 1996. “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect.” American Sociological Review 61 (4): 674–98.
Wang H. 2000. “Information Institutions and Foreign Investment in China.” Pacific Review 13 (4): 525–56.
Wei S. 2000. “How Taxing Is Corruption on International Investors?Review of Economics and Statistics 82 (1): 111.
Weidenbaum Murray, and Hughes Samuel. 1996. The Bamboo Network: How Expatriate Chinese Entrepreneurs Are Creating a New Economic Superpower in Asia. New York: Free Press.
White Roger, and Tadesse Bedassa. 2008. “Cultural Distance and the US Immigrant-Trade Link.” The World Economy 31 (8): 1078–96.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

American Political Science Review
  • ISSN: 0003-0554
  • EISSN: 1537-5943
  • URL: /core/journals/american-political-science-review
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
Type Description Title
Supplementary Materials

Leblang supplementary material
Data files

 Unknown (4.3 MB)
4.3 MB


Altmetric attention score

Full text views

Total number of HTML views: 15
Total number of PDF views: 225 *
Loading metrics...

Abstract views

Total abstract views: 732 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 18th November 2017. This data will be updated every 24 hours.