Transnational Social Capital and FDI. Evidence from Italian Associations Worldwide

Recent economic literature highlights that migrant networks help to overcome the informal barriers that exist in international markets and boost international investment. Stock or shares of immigrants by country of origin in the host country are the variable universally used as a proxy of networks. In this paper we propose a different measure of networks which is given by the associative activity of a given ethnic group in a wide number of foreign countries. Specifically, we utilize data on Italian associations abroad, with the idea that this variable has a finer explanatory power in generating the transnational social capital conducive to the formation of networks that prompt bilateral foreign direct investment (FDI). This paper estimates (OLS) an econometric model to study the impact of Italian associations abroad on Italy's bilateral FDI. The main result is that these associations have a significant positive effect on Italy's both inward and outward FDI. A theoretical framework, a historical profile of Italian associations abroad and one exemplary case help to interpret the econometric evidence.