Migration and the Location of MNE Activities. Evidence from Italian Provinces

Abstract

We investigate the link between migration and inward foreign direct investment (FDI) in narrow geographies and adopt a novel econometric strategy to shed light on the underlying mechanism. We estimate mixed logit models to explain the location choice of 1,113 greenfield investments made by 895 multinational enterprises (MNEs) in Italian provinces (NUTS3) over 2003--2015. This approach allows us to explore investor heterogeneity in preferences for location determinants, including migration. Our results indicate that immigrants from the same country of origin as the investor exert a positive and highly heterogeneous effect on the investment location. We contrast different competing explanations for such heterogeneity and single out MNE experience in Italy and the type of business activity carried out by the MNE as the most significant ones. The effect of immigrants is stronger for firms investing in Italy for the first time and for investments that rely more on information and market demand but is less important for labour-intensive investments.

These results are robust to addressing several sources of endogeneity and support, from a different angle, the view that the immigrant effect is essentially an information effect that bridges the fixed costs of foreign investment. Instead, we find no robust evidence supporting a role for emigrants in promoting inward FDI.

Keywords: Foreign Direct Investment, Migration, Location Choice, Information Effect; Demand Effect, Conditional Logit, Mixed Logit

JEL Classification: F22; F21; R30