Do Immigrants in the U.S. Prefer to Invest in Their Country of Origin?

What is it about?

We estimate the number of foreign-origin persons in the United States classified by their country of origin from census data in 1970, 1980, 1990 and 2000. We find, both in cross-sectional tests and in panel data tests, that the size of the foreign-origin group from a country living in the U.S. is positively correlated with U.S. investments in that country. This national origin bias is strong for direct (FDI) and modest for indirect (equity holdings) investments. The results continue to hold even after controlling for the “fundamentals” hypothesized to affect foreign investments. The other economic geography variables of a country—physical distance from the U.S., race, language and religion—do not seem to affect US investments in that country.

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Why is it important?

Is the United States a melting pot, where foreign-origin persons immediately discard their old identities and forge new ones? Or is it a salad bowl, where foreign-origin persons keep their separate identities and never assimilate? This is the first paper which examines this old debate using finance data. The results are more in line with the salad bowl story. Immigrants identify somewhat with their countries of origin because they disproportionately invest in them. The paper was featured in the Financial Times on January 30, 2002.

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