How Immigration Boosts Foreign Investment

There’s a long-term economic argument for welcoming immigrants: they attract foreign investment, research suggests.

American counties that historically received more migrants from a given country were significantly more likely to later receive investments from that country, according to research by Stockholm University’s Konrad B. Burchardi, Chicago Booth’s Tarek Alexander Hassan, and Toulouse School of Economics’ Thomas Chaney.

The researchers tracked 130 years’ worth of US immigration data at the county level. Their estimates suggest that doubling the number of residents with ancestry from a particular country would increase the probability of foreign direct investment from that country by 4 percent.

Doubling the number of residents with ancestry from a given country relative to the mean of the sample doubles the likelihood that at least one company from that country invests in a local firm.

Hassan says foreign companies may want to invest in the United States but face significant barriers, including language, complicated tax laws, and complex regulations. Having social or cultural ties to an immigrant population can break down those walls.

“If there’s a personal connection, it’s much easier to overcome all of these problems,” Hassan says.

This tendency helps explain why foreign direct investment often diverges from economic fundamentals such as tax breaks, lower wages, or shipping costs and instead follows the same paths as historical migrations.

“Taken together, our results suggest that receiving migration from a foreign country has a positive long-term effect on the ability of local firms to interact economically with the migrants’ country of origin,” the authors write.

The findings feed into current discussions about immigration and the willingness of countries to take in migrants fleeing violence. While countries such as Syria are not stable enough to invest in the US today, that is likely to change over time.

The authors point to previous immigration policies that had a significant impact on foreign direct investment in the US, including the Chinese Exclusion Act, which banned Chinese immigration from 1882 to 1943 and stifled Chinese immigration until the 1960s. They say those immigrants, had they been allowed in, could have spurred foreign investment in 69 percent of Massachusetts counties rather than the 43 percent that received investment from abroad.