Skilled Emigration, Business Networks and Foreign Direct Investment

25 Pages Posted: 26 Apr 2005

See all articles by Maurice Kugler

Maurice Kugler

Wilfrid Laurier University - School of Business & Economics; Harvard University - Center for International Development (CID); Centre for International Governance Innovation (CIGI); National Bureau of Economic Research (NBER)

Hillel Rapoport

Bar-Ilan University - Department of Economics; Stanford University

Date Written: April 2005

Abstract

In a global context foreign direct investment (FDI) and migration substitute one another in the matching process between workers and firms. However, as labor flows can lead to the formation of business networks, migration can actually facilitate FDI in the long-run. We first present a stylized model for a small open economy illustrating these offsetting effects. We then use U.S. data on bilateral labor inflows and capital outflows to measure the extent of contemporaneous substitutability and dynamic complementarity between migration and FDI. We find that brain drain and FDI inflows are negatively correlated contemporaneously but that skilled migration is associated with future increases in FDI inflows. We also find suggestive evidence of substitutability between current migration and FDI for migrants with secondary education, and of complementarity between past migration and FDI for unskilled migrants.

Keywords: brain drain, foreign direct investment inflows, migrant ties and business networks

JEL Classification: F22, F43, O41

Suggested Citation

Kugler, Maurice and Rapoport, Hillel, Skilled Emigration, Business Networks and Foreign Direct Investment (April 2005). CESifo Working Paper Series No. 1455. Available at SSRN: https://ssrn.com/abstract=710923

Maurice Kugler (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
CANADA

Harvard University - Center for International Development (CID) ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Centre for International Governance Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hillel Rapoport

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 535 3180 (Fax)

Stanford University ( email )

Stanford, CA 94305
United States

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