Diaspora-Owned Firms and Social Responsibility

Abstract

A causal relationship between diaspora populations and bilateral foreign direct investment has been established empirically, but the question of which elements of diaspora difference are responsible for this relationship remains unanswered. A growing literature in economic sociology and business suggests that diaspora investors are motivated by patriotism and other social and emotional factors, endowing them with unique potential as a force for international development. This literature argues that diaspora-owned firms are more socially responsible than other foreign firms, and engage in a range of development-promoting behaviors when investing in the homeland: hiring more local labor, paying higher wages, and taking better care of the local environment. I argue instead that diaspora-owned firms enjoy competitive advantages in the homeland based on access and attention to information. I test this theory at the firm level, using data from an original survey of 174 foreign-owned firms in the post-conflict country of Georgia. Across a range of self-reported behaviors and priorities, I find no evidence that diaspora-owned firms are more socially responsible than other foreign firms, and some evidence that they are less socially responsible. I argue that diaspora investors are uniquely capable, but not uniquely philanthropic, when doing business in their homelands.

A published version of this paper (Review of International Political Economy, 2013) is new available at: http://dx.doi.org/10.1080/09692290.2012.747103

Keywords: diaspora, foreign direct investment, corporate social responsibility, social responsibility, Georgia, development, migrants, migration, investment

JEL Classification: F21, O16