Playing the FDI behavioural biases

Richard H Thaler ( @R_Thaler ) received the Nobel Prize in Economy for his contributions to behavioural economics : breaking away from the assumption that "people are highly-rational – super-rational – and unemotional" investors.

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At NamSor, we've work on several investment and trade projects, using NamSor sociolinguistics software to target and engage potential diaspora investors from a given country, assuming that the individual investor would have some positive bias towards his/her country of origin.

On a macro-scale, several economy papers have proved the positive correlation between migration and foreign investment or trade. For example, in the recent paper “The relation between migration and FDI in the OECD from a complex network perspective”, Antonios Garas, Athanasios Lapatinas and Konstantinos Poulios conclude that “Diasporas in the OECD attract FDI to their origin countries and this result can be mostly explained by countries’ economic, demographic and geographic characteristics. Our main findings though suggest that bilateral FDI increases the more inward central in the migration network pairs of countries are. Moreover, migrants originated from overlapping ‘third party’ countries can be FDI enhancing. We have also found that outward FDI is positively associated to inward migration: migrants in country 𝑗𝑗 originated from country 𝑖𝑖 attract FDI in their origin country 𝑖𝑖 from destination country 𝑗𝑗. Interestingly, our results indicate that the larger the diversity of migration channels and the stock of immigrants from ‘third-party’ origins towards any two countries that are FDI connected, the higher the stock of foreign capital in the FDI-host country originated from the FDI-parent country. Our findings remain robust to alternative count data estimation techniques.”

When it comes to decision making and doing something to attract more FDI to a given country, we've found the cultural biases to be complex to analyse on macro-scale : some diasporas have a poor opinion of their country of origin. Would you invest in your country of origin if you perceive it as bureaucratic or corrupt, compared to the country you live in? Would you take the risk to make high level introductions to your network? The more targeted (by sector/by geography), the easier a bond of trust can be re-created between an investment promotion agency and the country’s diaspora. For example, we’ve worked on successful projects in the field of IT outsourcing, biotechnologies, ICT and start-ups, bio-economy, …

Diasporas have a positive impact on trade and foreign investment, but it is critical to engage them in a targeted manner and make sure any “behavioural biases” will work in the favour of investing in YOUR country. 

 

About FDI Magnet

FDI Magnet is NamSor™ offering for Investment Promotion. We use our unique data mining software to offer differentiated Foreign Direct Investment (FDI) services.
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