International Investments Flows: The Role of Cultural Preferences and Migrants Networks

Foreign Direct Investments are the most complex form of internationalization. A large part of the recent international trade literature has focused on their determinants on the ground that they spur growth and have a positive impact on development. This thesis examines FDI along two different and understudied lines. The first line of research focuses on cultural factors promoting bilateral investments flows. In chapter 1 and chapter 3, I propose a novel definition of Cultural Proximity wich separates the effect of cultural similarity from the role of perceptions and cultural affiity. I am able to innovate with respect to the existing literature by capturing the effect of time varying and possibly asymmetric patterns in the reciprocal cultural appreciation between two countries. In Chapter 1 I explicitly deal with the potential asymmetry in bilateral cultural appreciation, and test for the emergence of non reciprocal cultural patterns in the analysis of bilateral Greenfield FDI. An example clarifies what I mean: consider South Korea and Latin America. The so called Korean Wave, consisting of soap operas and Korean pop music has become extremely popular in Latin America since the mid 2000s, despite of geographic and cultural distance in terms of language and ethnicity. Yet, there is no evidence of a symmetric rise in popularity of Latin American culture in South Korea. The underlying idea is that the "new" positive perception of Korea enhances bilateral (trade and) FDI. In Chapter 3 I highlight the heterogeneity of FDI and the non-linearities that could emerge in the relationship between cultural affnity and bilateral M&A. In the empirical exercise, I use an econometric model that allows me to disentangle the impact of the different level on M&A. The second line of research explores the role of migrants' flows on bilateral FDI. Borrowing the tools from social network analysis, in Chapter 2 I investigate whether and how the position of a country in the International Migration Network affects a country's bilateral investment flows beyond the direct role of its local emi(immi)-grant population. The empirical application is on Greenfield FDI.