4 - Diaspora Bonds

Summary

After establishing why people migrate, in this chapter we turn to an investigation of how migrants economically re-engage with their homeland. Specifically, we explore how migrants facilitate flows of international financial capital. We argue that migrants, because they possess critical knowledge about investment opportunities in their homelands, help international investors overcome information asymmetries which drives both portfolio and foreign direct investment into their homelands. Our empirical analyses leverage a wide range of data on migrant stocks and portfolio and foreign direct investment to test our argument. We find that migrants are key to explaining international capital flows, especially in environments where formal political institutions that protect property rights are absent or weak.