Immigrant-led foreign direct investment and the dynamics of cross-border capital allocation

Published: 13 December 2023| Version 1 | DOI: 10.17632/7hz22drzwz.1
Koffi Sodokin, Kokou Tozo,


This study examines the impact of immigration on Foreign Direct Investment in 21 middle-income African countries between 1990 and 2021. Employing a dynamic panel model with heteroscedasticity-based identification, this study reveals that an increased stock of prior Foreign Direct Investment inflows as well as a larger share of immigrants focused on Foreign Direct Investment significantly boosts the attractiveness of these nations to potential foreign investors. These findings align with the literature on agglomeration effects and reinforce the notion that initial immigrant investors are critical in stimDataulating future Foreign Direct Investment. The results revealed a negative correlation between the overall immigration rate and Foreign Direct Investment, suggesting possible substitution effects. However, the interaction of past Foreign Direct Investment with immigration yields a positive and substantial coefficient, indicating that immigration amplifies Foreign Direct Investment, especially when immigrants are directly engaged in investment activities. From a policy perspective, these insights highlight the need to facilitate the entry of skilled and entrepreneurial immigrants. This calls for the implementation of immigration policies, advocating the prompt admission of immigrants while upholding ethical standards, fostering social equity, and protecting fundamental human rights. This approach aligns with ethical imperatives and serves as a strategic mechanism to enhance the economic landscape through targeted and beneficial immigration practices.