Migration and Cross-Border Financial Flows

Abstract

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Remittances and the Effectiveness of Foreign Aid

“…Likewise, it is argued that immigrants help promote private cross-border financial flows, offshoring, and foreign direct investment (FDI) by providing relevant information, reducing uncertainty and building trust (see, e.g. Leblang, 2010;Javorcik et al, 2011;Kugler et al, 2013).…”

“…8 Furthermore, compared with the effects of migration on international trade and private financial flows, it appears to be more difficult to reduce "information and trust friction" when it comes to the effectiveness of official development aid. According to the literature on trade and FDI, it is mainly skilled migrants who play a significant role in fostering private international flows (Head and Ries, 1998;Javorcik et al, 2011;Kugler et al, 2013). However, migrants and temporary workers from strongly aid-dependent countries are often unskilled and may lack the knowledge and contacts needed for reducing transaction costs.…”

“…Note that Kugler et al () use bilateral data on migration for just two points in time, 1990 and 2000. Parsons () uses data with 10‐year intervals since 1960.…”

“…According to Nunn and Qian (), “interacting an arguably exogenous term [here: donors’ remittances paid to all countries, rather than bilateral flows] with one that is potentially endogenous [here: bilateral aid], can be interpreted as exogenous since we directly control for the main effect of the endogenous variable.” This reasoning resembles the logic of a difference‐in‐differences estimation (Nunn and Qian, ). In a similar vein, Kugler et al (, p. 4) argue that focusing on the differential impact of a potentially endogenous variable renders omitted‐variable bias less likely since a possible confounder would have to “explain not just the main effect but also the differential effects.” Dreher et al (, p. 3) follow this logic by distinguishing the growth effects of politically motivated aid from the effects of all aid, without offering “recipes to estimate a causal effect of all aid on growth.”…”

Diasporas and Economic Development: A Review of the Evidence and Policy

“…When it comes to trade, several studies have shown that migrants play an important role in reducing non-tariff barriers between nations (e.g., Gould, 1994;Rauch, 1999;Rauch and Trindade, 2002;Cohen et al, 2017;Parsons and Vézina, 2018 A similar argument is made for cross-borders investment, which is often hindered by risks associated with the uncertainty on formal and informal rules in the "other" country. Migration has been proved to help mitigate those risks by liaising between potential investors and partners, both private and public, as it has been shown empirically by several studies (e.g., Kugler and Rapoport, 2007;Javorcik et al, 2011;Foley and Kerr, 2013;Burchardi et al, 2018;Kugler et al, 2018;Mayda et al, 2020).…”