countries of residence, those living in the rich economies invest and promote the foreign
investments in Italy. The weakest influence of the immigrants’ networks may depend on the
country’s strongest ties with the Italian emigrants, which emerge from all specifications of Table 3,
but also on the more limited presence of skilled immigrants, especially from the non-OECD
countries, relatively to their presence in the other three European countries examined (Table 1).
These results confirm our expectation that the information and enforcement mechanisms of
business networks are stronger when they help to overcome the highest barriers, presumably those
that separate developed and the developing countries. Note that the influence of these networks
persist in equations that already include among the regressors various institutional and cultural
proxies of the dissimilarities between countries. This seems to suggest that the mere fact of being
outside the “club” of the developed economies diminishes a country’s possibility of receiving
investments from abroad and, at the same time, rises the importance of the international ties.
A last issue concerns potential problems of endogeneity and reverse causation between the
FDI and migration. As said above, this possibility may be higher for the relations between inward
FDI and immigration and between outward FDI and emigration. Also, it can be more pronounced
for the skilled migrants of the OECD economies. The results of the dynamic equations show that
the two cases of potential reverse causation, of outward FDI and emigration and of inward FDI and
immigration are excluded for the German data. In the case of Italy, the long history of the Italian
emigration suggests that migration is likely to precede FDI. 10
V. Policy implications
The international links of business networks can have a positive impact on the bilateral FDI
of both developed and developing countries. Hence, both sides should be interested in supporting
the formation of international business networks and in strengthen their transnational ties. The
positive effects of networks are likely to be positively related to the immigrants’ integration into the
host country’s economy and society. A deeper and more rapid integration process may weaken the
ties of any single individual with his country of origin, but may also strengthen and make more
pervasive the performance of the business community. The ties themselves may be reinforced by
migrants having the possibility of making frequent trips to their countries of origin. The latter, as
other forms of direct interactions, may be facilitated by policies implemented by both the receiving
and the origin economies (Rauch, 2003).
VI. Conclusions
10 Granger panel tests of causality have been performed for Germany and Italy, which show that FDI depend on
immigration and not vice versa. Observations are not enough to perform the same tests on France and the U.K.
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