Good Friends in Uncertain Times: Social Connectedness and Foreign Direct Investment

64 Pages Posted: 27 Dec 2022 Last revised: 9 Nov 2023

See all articles by Felix Dornseifer

Felix Dornseifer

Technical University of Dortmund

Oliver Rehbein

Vienna University of Economics and Business

Date Written: June 15, 2023

Abstract

This paper shows that cross-country social networks can help to mitigate the negative effects of uncertainty on investment. We document an economically important relationship between real-world social networks -- measured through friendship links on Facebook -- and foreign direct investment (FDI). We exploit genetic distance as a novel instrument to establish a plausible causal link. Social connectedness is particularly important when political, economic, and institutional uncertainty is high. Our results suggest that interpersonal connections are one possible channel to resolve investment frictions arising from increasing global political and economic uncertainty.

Keywords: FDI, investment, social connectedness, uncertainty

JEL Classification: F21, F23, G41

Suggested Citation

Dornseifer, Felix and Rehbein, Oliver, Good Friends in Uncertain Times: Social Connectedness and Foreign Direct Investment (June 15, 2023). Available at SSRN: https://ssrn.com/abstract=4304968 or http://dx.doi.org/10.2139/ssrn.4304968

Felix Dornseifer

Technical University of Dortmund ( email )

Friedrich-Wöhler-Weg 6
Dortmund, 44227
Germany

Oliver Rehbein (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

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