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Migration and cross-border equity portfolio flows

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  • Maurice Kugler
  • Hillel Rapoport

Abstract

The gravity model has provided a tractable empirical framework to account for bilateral flows not only of manufactured goods, as in the case of merchandise trade, but also of portfolio assets. In particular, Portes and Rey (2005) show that the gravity model successfully accounts for the pattern of cross-border equity portfolio flows. The interpretation given to the negative coefficient on the distance measure in this context is not that distance proxies for transportation costs but rather that it proxies for information costs. Thus, information asymmetries are more severe when investors consider acquiring equity in assets based in far flung locations. In this paper, we explore to what extent migration plays a role in mitigating such informational asymmetries (indeed, migrants can convey information about assets in their country of origin to investors based in the destination country) and find that migration, and especially skilled migration, is associated with larger cross-border equity investment from the destination country of the migrant into assets based at the origin country of the migrant. We interpret these results as providing further evidence of the role of information asymmetries in explaining cross-border equity portfolio flows, and of the instrumental role of skilled migrants in promoting capital inflows to their home country.

Suggested Citation

  • Maurice Kugler & Hillel Rapoport, 2011. "Migration and cross-border equity portfolio flows," CID Working Papers 223, Center for International Development at Harvard University.
  • Handle: RePEc:cid:wpfacu:223
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    File URL: https://www.hks.harvard.edu/sites/default/files/centers/cid/files/publications/faculty-working-papers/223.pdf
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    References listed on IDEAS

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    1. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
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    3. Iranzo, Susana & Peri, Giovanni, 2009. "Migration and trade: Theory with an application to the Eastern-Western European integration," Journal of International Economics, Elsevier, vol. 79(1), pages 1-19, September.
    4. Martin, Philippe & Rey, Helene, 2004. "Financial super-markets: size matters for asset trade," Journal of International Economics, Elsevier, vol. 64(2), pages 335-361, December.
    5. Frédéric Docquier & Hillel Rapoport, 2012. "Globalization, Brain Drain, and Development," Journal of Economic Literature, American Economic Association, pages 681-730.
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    Cited by:

    1. Kugler, Maurice & Levintal, Oren & Rapoport, Hillel, 2013. "Migration and Cross-Border Financial Flows," IZA Discussion Papers 7548, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Migration; International Equity Portfolio Flows; Information Asymmetries;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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