Taking advice from immigrants has a positive effect on outward foreign investment because, given the right circumstances, immigrants can provide companies in their host country with key information about their home countries, according to new research by Vienna University of Economics and Business.
The research, conducted by Professor Jonas Puck, Vera Kunczer and Thomas Lindner, reveals that knowledge about circumstances in target countries is key in international investment decisions.
The study argues that immigrants usually have a comprehensive understanding of the language, economics, culture, political systems, and the business practices of their home countries, than citizens of the host country.
As a result, companies can improve their familiarity with international markets based on immigrants’ first-hand market knowledge and social ties to their respective home countries, regardless of whether the immigrants are employed by the companies.
Immigrants can contribute to companies’ knowledge indirectly by interacting with other people in the host country. This leads to knowledge flows between different markets that go beyond the mere employment of immigrants in the host country.
“A firm located where immigrants move can use the immigrants’ knowledge to reduce barriers to the markets in the immigrants’ home countries. This, in turn, reduces a company’s uncertainty, which results in the country being more attractive to a firm seeking to establish operations abroad,” says Professor Puck.
However, the effect of immigrants’ knowledge on the resources a company commits to operations abroad depends on two key factors: the stability of the political framework in the country of origin and the attitudes towards immigration in the host country.
“The information provided by the immigrants can be negatively influenced by policy instability in their home country, because immigrants’ knowledge about their home country may no longer be accurate if the situation is unstable there. Furthermore, if anti-immigrant sentiment is prevalent in the host country, companies may be less likely to listen to the information and advice provided by immigrants,” says Professor Puck.
The research was supported by data from Oesterreichische Nationalbank (OeNB) and uses a data set based on more than 13,000 observations made over a 14-year period and was published in the Journal of International Business Policy.