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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 (
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Gur Huberman . 2001. “Familiarity Breeds Investment.” Review of Financial Studies 14 (3): 659–80.

Organisation for Economic Co-operation and Development (OECD). 2006. OECD Migration Outlook 2006. Paris: OECD.

Jordan Siegel , Amir Licht , and Shalom Schwartz . 2008. “Egalitarianism and International Investment.” Harvard Business School. Manuscript.

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American Political Science Review
  • ISSN: 0003-0554
  • EISSN: 1537-5943
  • URL: /core/journals/american-political-science-review
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