Transnational Social Capital and FDI. Evidence from Italian Associations Worldwide

This paper analizes the impact that one of the more important diasporas of modern history has had on the international transactions of its origin country, Italy. A diaspora is considered as a manifestation of social capital in an international context, and social capital is seen as the cultural traits that the ethnic group transmits from generation to generation and enable their members to act together more effectively to pursue shared objectives. More specifically, it facilitates the circulation of information on economic opportunities in the country of origin and in the country of settlement. This information is valuable for firms and can boost bilateral trade and foreign direct investments (FDI). In particular, this paper assesses the impact of the transnational social capital of the Italian diaspora on Italy's bilateral FDI. On that purpose, it estimates (OLS) an econometric model which uses Italian associations abroad as a proxy of the diaspora's social capital. The main result is that this variable has a significant positive effect on Italy's both inward and outward FDI. This paper also reconstructs a historical profile of Italian associations aborad and examines in detail how one of these opearted, prompting connections among members of the diaspora and establishing links with the home country.