Diasporas, Political Institutions, and International Investment

David Leblang has indicated that he would be willing to meet with students and staff on Friday February 3. If you would like to arrange a meeting, please contact David Doyle.

There is a small but growing literature on the effect of diaspora networks on flows of global trade and capital. This literature, however, only explores the direct effect of co-ethnic networks on international trade and investment. But the argument about the role of co-ethnic networks has important implications beyond this direct effect. Because transnational networks of migrants and co-ethnics help transmit information across national borders they can serve as a substitute for weak institutions or poor arbitration mechanisms that may otherwise hinder cross-border economic activity. And because these networks provide mutual trust between agents they can help alleviate problems of contract enforcement. We test this argument on a dyadic panel of countries over the period 2001-2007 and find a positive and substantively important substitution effect of diaspora networks on global economic flows.