This article examines the causal effect of refugees resettled in the United State (US) on Foreign Direct Investment (FDI) flows from the US to refugees’ countries of origin, and studies the case of Vietnamese ‘boat people’ who arrived in the US in 1975.
Specifically, the authors examine the effect of refugees who entered the US between 1990 and 2000 on FDI to their countries of origin between 2005 and 2015. For the case of Vietnamese boat people, the authors examine the effect of country policies and refugees’ human capital in influencing FDI from the US to Vietnam. The analysis is based on confidential data on the universe of refugees resettled in the US between 1990 and 2015 from the Bureau of Population, Refugees and Migration (PRM) of the US Department of State, together with project-level FDI data from fDiMarkets, a research arm of the Financial Times Group (FT).
Refugees may facilitate FDI in three ways: (1) refugees might be positively selected and relatively well endowed with human capital and therefore more likely to succeed and facilitate FDI flows; (2) refugees facilitate FDI through their ethnic networks or social capital; and (3) cross-cultural experiences increase individuals’ capabilities to identify promising business ideas.
- Refugee inflows significantly increase FDI to refugees’ countries of origin 15 years later, across all measures of FDI (flows, projects, and jobs). A 10 percent increase in refugees increases outward FDI flows to their countries of origin by 0.54 percent, FDI projects by 0.24 percent and FDI jobs by 0.72 percent. These increases exceed corresponding estimates in the related literature on the impact of economic migrants on outward FDI flows.
- There is substantial heterogeneity across countries of origin, with the largest impact on FDI for former Soviet Union countries, the former Yugoslavia, and Vietnam.
- The positive impact of refugees and FDI flows are greater in countries of origin with greater political stability and an absence of conflict and are smaller in countries of origin which are politically unstable.
- The Vietnamese case study provides causal evidence that Vietnamese refugees fostered FDI to their home region, while national domestic reforms in Vietnam amplified the positive FDI-creating effects of the overseas Vietnamese diaspora. More highly skilled (white collar workers) exert greater effects on bilateral FDI than blue collar workers and these effects are larger in more skill-intensive FDI sectors.
The authors conclude that refugees foster FDI to their origin countries approximately a generation after they were first resettled, and this effect is larger when peace and political stability prevail in origin countries. These findings demonstrate the strong ties that refugees maintain with their origin countries years or even decades after their displacement.