Working Paper: NBER ID: w21847
Authors: Konrad B. Burchardi; Thomas Chaney; Tarek A. Hassan
Abstract: We use 130 years of data on historical migrations to the United States to show a causal effect of the ancestry composition of US counties on foreign direct investment (FDI) sent and received by local firms. To isolate the causal effect of ancestry on FDI, we build a simple reduced-form model of migrations: Migrations from a foreign country to a US county at a given time depend on (i) a push factor, causing emigration from that foreign country to the entire United States, and (ii) a pull factor, causing immigration from all origins into that US county. The interaction between time-series variation in origin-specific push factors and destination-specific pull factors generates quasi-random variation in the allocation of migrants across US counties. We find that a doubling of the number of residents with ancestry from a given foreign country relative to the mean increases by 4 percentage points the probability that at least one local firm engages in FDI with that country. We present evidence this effect is primarily driven by a reduction in information frictions, and not by better contract enforcement, taste similarities, or a convergence in factor endowments.
Keywords: migrants; foreign direct investment; ancestry; economic impact
JEL Codes: F21; G15; J61; L14; N3; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ancestry composition (J11) | Foreign direct investment (FDI) (F21) |
| Doubling of residents with ancestry from a specific foreign country (J11) | Probability of local firm engaging in FDI (F23) |
| Presence of individuals with common ancestry (J11) | Reduction in information frictions (D89) |
| Early migrations from the 19th century (F22) | Contemporary FDI patterns (F23) |