Migration and International Financial Flows

This paper synthetizes the recent literature on the links between international migration and international financial flows (Foreign Direct Investment and cross-border flows of financial assets and bank loans). The two main conclusions are as follows. First, international migration reduces bilateral transaction costs and information imperfections, thereby facilitating FDI and other financial flows from migrants' host to home countries. Second, skilled migrants – who are more likely to hold information that is relevant to foreign investors and also more likely to take part in international business networks – play an essential role in this process. Overall, international migration appears to promote the integration of home countries (especially of developing countries) into the global financial economy and contributes to reduce the home-bias that characterizes the structure of financial investments in industrialized countries.