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Familiarity Breeds Investment: Migrant Networks and Cross-Border Capital
Unformatted Document Text:  10 the Indian market. In his study of the Indian community residing in the United States, Kapur (2001) explains how the mere presence of that community enhances investment opportunities in India: “Companies like Yahoo, Hewlett Packard and General Electric have opened R&D centers in India largely because of the confidence engendered by the presence of many Indians working in their US operations. This points to the cognitive effects arising from the projection of a coherent, appealing, and progressive identity on the part of the diaspora which signals an image of prosperity and progress to potential investors and consumers.” 9 Along with the provision of an image of their home country, migrant networks can provide business opportunities through formal (e.g., business) or information (e.g., familial) contacts in their home country. These linkages have been extensively documented in studies of specific industries and migrant communities, although they are likely best documented in studies of the overseas Chinese (Rauch and Casella 2001). In their study, the Bamboo Network, Weidenbaum and Hughes (1996) detail the comparative advantage overseas Chinese have when it comes to investing in China and argue that it goes well beyond commonality of language, knowledge of cultural and legal barriers, and pre-existing familial connections. Wang’s study shows how ethnic Chinese residing abroad provide a “linkage between China and the rest of the world [in that they] facilitate the understanding of and access to guanxi networks by other foreign investors. Without the agency of ethnic Chinese, it would have been much more difficult for foreign companies to use informal personal networks to complement and compensate for the weak formal legal institutions in China” (Wang, 2000). These familiarity effects are important as they help investors overcome general problems associated with information asymmetries. Migrant communities can also play a more direct role in facilitating cross-national portfolio investment by helping reduce barriers to entry-- 9 Kapur and McHale (2006) refer to this as “branding” and argue that the Indian diaspora has created a brand name by signaling the potential productivity and trustworthiness of their countrymen.

Authors: Leblang, David.
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10
the Indian market. In his study of the Indian community residing in the United States, Kapur
(2001) explains how the mere presence of that community enhances investment opportunities
in India: “Companies like Yahoo, Hewlett Packard and General Electric have opened R&D
centers in India largely because of the confidence engendered by the presence of many Indians
working in their US operations. This points to the cognitive effects arising from the projection
of a coherent, appealing, and progressive identity on the part of the diaspora which signals an
image of prosperity and progress to potential investors and consumers.”
9
Along with the provision of an image of their home country, migrant networks can provide
business opportunities through formal (e.g., business) or information (e.g., familial) contacts in
their home country. These linkages have been extensively documented in studies of specific
industries and migrant communities, although they are likely best documented in studies of the
overseas Chinese (Rauch and Casella 2001). In their study, the Bamboo Network, Weidenbaum
and Hughes (1996) detail the comparative advantage overseas Chinese have when it comes to
investing in China and argue that it goes well beyond commonality of language, knowledge of
cultural and legal barriers, and pre-existing familial connections. Wang’s study shows how
ethnic Chinese residing abroad provide a “linkage between China and the rest of the world [in
that they] facilitate the understanding of and access to guanxi networks by other foreign
investors. Without the agency of ethnic Chinese, it would have been much more difficult for
foreign companies to use informal personal networks to complement and compensate for the
weak formal legal institutions in China” (Wang, 2000).
These familiarity effects are important as they help investors overcome general problems
associated with information asymmetries. Migrant communities can also play a more direct
role in facilitating cross-national portfolio investment by helping reduce barriers to entry--
9
Kapur and McHale (2006) refer to this as “branding” and argue that the Indian diaspora has created a brand
name by signaling the potential productivity and trustworthiness of their countrymen.


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