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G lobalizationhasnotonlygivenrisetoanacceleratedflowofgoodsandservicesaroundtheworldbuthasalsofosteredanincrease
inthemovementofpeopleacrossborders.Intheirnewcountries-of-residence,migrantsoftenacquirenewknowledge,skills,socialcontacts,andfinancialresources.Eventhoughtheymaybefarfromhome,migrantsoftenmaintainsocialandpsychologicalconnectionstotheircountries-of-origin.Theyoftenencouragetheirchildrenandgrandchildrentocontinuethesehomelandconnec-tions.“Diasporans”areindividualswho“resideoutsideoftheirperceivedhomeland,whetherindependentornot.Theyregardthemselves,orareregardedbyothers,asmembersorpotentialmembersofthenationalcom-munityoftheirhomeland,astandingretainedregardlessoftheactualstatusoftheircitizenshipinsideoroutside
Diasporas: Exploring
their
Development
PotentialBy Liesl Riddle
2� ESR—Fall 2008
RESEaRCh
theirhomeland.”1Diasporacapital—human,social,andfinancial—maybeausefuldevelopmentresourceformigrant-sendingcountries,manyofwhichareamongthemostcapitalneedyintheworld. Today,ahostofactorsengagedinpoverty-reductionactivities—policymakers,NGOs,sociallyresponsiblebusinesses,andacademics—areaskingthequestion:Howcandiasporacapitalbemobilizedandutilizedindevelop-mentactivities?ResearchersatTheGeorgeWashington
Universityhaveformedaninterdisciplinaryresearchgroup,calledtheGWDiasporaCapitalInvestmentProject,toexamineanincreasinglypopularwaydiaspo-ransarecontributingtodevelopment:by investing their capital in existing businesses and setting up new ventures in their countries-of-origin.Theresearchteamexplorestheunderlyingmotivationsforthistransnationaleconomicbehavior,estimatesthemarketpotentialforvariousdiasporainvestmentalternatives,andidentifiespolicyandmarketingbestpracticesfornationalgovernments,aidagencies,multilaterals,andNGOsseekingtocultivateandfacilitatediasporainvestmentandentrepreneurship.
Diasporas in the 21st CenturyCoinedinthethirdcentury,thetermdiasporasoriginatesfromtheGreekwordδιασπορά,“ascatteringorsowingofseeds.”TraditionallythetermwaslimitedtotheJewishdispersion.Butsincetheearly1990s,manydictionar-ieshaveexpandedthedefinitiontoincludeanybodyofpeoplelivingoutsidetheirtraditionalhomeland. Thisbroaderdefinitionreflectsthechangingmagni-tudeandnatureofglobalmigration.Since1975,worldmigrationhasmorethandoubled.Today,approximately
3percent(150millionpeople)oftheworld’spopulationaremigrants,ofwhichmanyhaveemigratedfromadevel-opingcountrytoadevelopedcountry.Oneintenpersonslivinginadevelopedcountrytodayisamigrant.2
Innovationsintransportationandcommunicationtechnologiesnowallowmigrantstopsychologicallyandphysicallyconnectwiththeircountries-of-origininwaysthatwerevirtuallyunimaginableinthepast.Decliningcostsinairandothertransportationmodesmakeiteasier
forimmigrantsandtheirdescendantstovisittheircountries-of-originandhaveinspiredthedevelopmentof“heritagetourism.”Globalmediaprovideimmigrantswithaconstantstreamofinformationabouttheirori-gincountries.Ethnicbulletinboards,cybercommunities,ande-commercesitesontheinternetoffermigrantsanopportunitytosociallycon-nectnotjustwitheachotherbutalsowithfamily,friends,andotherindividualsintheircountry-of-origin.
Formanydiasporans,theexperiencesandopportuni-tiestheyareexposedtointheircountries-of-residenceinspirethemtoseekwaystocontributetothedevelop-mentoftheircountries-of-origin.Somejoindiasporaadvocacygroups,lobbyingthegovernmentsoftheircountries-of-residenceonbehalfofdevelopmentissuesintheircountries-of-origin.Otherdiasporansstrivetoenhancethedevelopmentoftheircountries-of-originbyengaginginphilanthropicactivities,raisingmoneyinthecountries-of-residence,orvolunteeringtheirtimeforsocialandenvironmentalorganizationslocatedinthecountries-of-origin. But,increasingly,diasporansaresearchingforavenuestoextendtheirdevelopmentimpactbeyondpoliticsandphilanthropy.Theyseekwaystoleveragethehuman,social,andfinancialcapitaltheyhaveacquiredtomakeinvestmentsandestablishnewbusinessesintheircountries-of-origin.
Diaspora Investment & EntrepreneurshipFormanydevelopingcountries,individualslivinginthediasporaearnrelativelyhigherincomescomparedtothoseearnedbyindividualslivinginthecountry-of-residence.
One in ten persons
living in a developed
country today
is a migrant.
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Thesehigherincomesincreasethepotentialforinvestmentandentrepreneurialactivityamongdiasporapopulationsashigherincomesmayresultingreateramountsofdis-posableincomeavailableforeconomicinvestment.Thisisparticularlytruewhenanorigincountry’sincomepernatural(i.e.,themeanincomeperpersonofthosebornintheorigincountryregardlessofcurrentcountry-of-residence)substantiallyexceedsitsgrossdomesticproduct(GDP)percapita.Ina2008study,ClemensandPritchettestimatethatincomepernaturalexceedsGDPpercapitaby10percentormoreinalmostthirtycountries.Insomesmallercountrieswithlargeemigration,thedifferentialismuchhigher.Forexample,thedifferencebetweenincomepernaturalandGDPpercapitaexceeds103percentinGuyana,81percentinJamaica,60percentinAlbania,and51percentinLiberia.3 Manydiasporansremitmoneybackhometofriendsorfamily.In2006morethan1.5billionseparateremit-tancetransactionsweremade,mostlyinincrementsofUS$100,$200,or$300.Takentogether,theseremittancepaymentsaccountforasubstantialflowofcross-bordercapital:Globaltotalremittanceflowsin2006wereesti-matedtobeUS$300billion.Diasporaremittancesarekeysourcesofcapitalinflowformanydevelopingcountries.In2006remittanceflowstodevelopingcountriestotaledUS$167billion,asumtwotimestheamountofdevelop-mentaidsenttothosecountriesfromallsources.India,China,Mexico,France,andthePhilippinesareamongtheworld’slargestrecipientsofremittances.Insomesmallercountries,suchasMoldova,Latvia,andHaiti,remittancescomprisethelargestshareofthetotaleconomy. Butmanydiasporansseekwaystobecomemoreeconomicallyinvestedintheeconomiesoftheircountries-of-originbeyondmakingremittancepayments.BalJoshi,isaprimeexample.BorninNepalbuteducatedandnowlivingintheUnitedStates,JoshicreatedThamel.com,4awebportalallowingNepalesediasporanstopurchasegoodsandservicesonlinefromNepalesesuppliersandhavethemdeliveredtothehomesoffriendsandfamilylivinginNepal.Joshi’sinvestmenthasgeneratedmanybenefitsforhishomecountry.Thamel.comhascreatedmorethanfourhundrednewjobs,improvedtheopera-tionalefficienciesandqualitycontrolofitslocalsuppliers,andbroadenedthearrayofgoodsandservicesitssup-pliersprovidetoconsumers.Thamel.comsuppliersearnmorethan30percentofmostlocalsuppliersintermsofannualsales;duringfestivalsThamel.comsuppliersearnonaverage50percentmorethantheircompetitors. Diasporainvestmentsdonotalwaysinvolvethe
internet.Somediasporanssetupserviceoperations,suchasrestaurants,retailchains,consultingcompanies,ortourism-orientedenterprises.Otherscreatemanufacturingfacilitiesintheirhomecountry,producinggoodsforlocaland/orexportsale,orestablishsubsidiariesforbusinessesbasedinothercountries.Insomecases,theseinvestmentsaremadeby“diasporaforeigndirectinvestors,”ordiaspo-ranswhoalreadyownandoperateabusinessbasedout-sidetheircountry-of-origin.Butinmanyotherinstances,theserviceormanufacturingoperationestablishedbythediasporanisanewventure,oranexampleof
“diasporaentrepreneurship.” Thedevelopmentimpactofdiasporainvestmentisoftendiscussedintermsofthegrowthofemerginggiants,ChinaandIndia.AsanarticleinForeign Policyaptlynoted,“Withthehelpofthediaspora,Chinahaswontheracetobetheworld’sfactory.Withthehelpofthediaspora,Indiacouldbetheworld’stechnologylab.”5But,theimpactofdiasporainvestmentandentrepreneurshipextendsbeyondtheemergingmarketsofChinaandIndia.Diasporainvestmentandentrepreneurshipareparticularlyimportantfornationsthatmightbedeemedlessattrac-tivebynon-diasporainvestorsbecauseofsmalldomesticmarketsize,inadequateinfrastructure,orless-attractivestructuralcharacteristics.Diasporainvestmentalsoplaysanimportantroleinthereconstructionofmanypost-con-flictcountries.ThepositiveeconomicimpactofdiasporahomelandinvestmentflowsinAfghanistan,Liberia,SierraLeone,andotherpost-conflictenvironmentshavebeenrecognizedbytheUnitedNations. Evendevelopingcountrygovernmentsthatareunder-whelmedwithforeigndirectinvestment(FDI)asawholehavebegunseekingcreativewaysofencouragingdiasporainvestment.SkepticsofFDIasaneconomicdevelopmenttooloftenvoiceconcernsthatFDIisnotalwaysefficientlyinvested.Theyarguethatitcrowdsoutdomesticinvest-ment;displaceslocalfirmsinproduction,service,andfinancialmarkets;generatesareductioninlocalcompeti-tion;andleadstolowerqualityproductsandinflatedpricesinlocalmarkets. Manygovernmentsbelievethatdiasporainvestmenthasagreaterchanceofyieldingbusinessoperationsthataremorebeneficialfordevelopmentthannon-diasporaFDIbecausediasporainvestmentandentrepreneurshipoftenisnotjustdrivenbythequestforprofitmaxi-mization;socialandemotionalmotivationsalsoplayarole.Someseekthepotentialemotionalsatisfactiontheyreceiveby“helpingoutthehomeland”orfeelitistheirdutyorobligationtocontributetothecountry-of-origin
31
research
economy.Inmanycases,investinginthecountry-of-originisdeemedanhonorableactivitywithindiasporacommunitiesorbyfriendsandfamilybackinthecountry-of-origin.Thesocialrecognitionadiasporanreceivesbyinvestingintheorigincountrymayalsobeakeymotivatingfactor. Thesenonpecuniaryinvestmentmotivationsmayincentivizediasporanstomakeinvestmentdecisionsthatmayormaynotgenerateimmediaterichprofitrewardsbutinsteadmaysewtheseedsofaninvestmentinthecountry’slong-termeconomicandsocialdevelopment.Forexample,diasporans’emotionalandsocialinvest-mentconcernsmaymakethemmorelikelytokeeptheircapitalintheinvestment-destinationcountryratherthanrepatriateprofits.Theymaybemorelikelytoreinvestintheirestablishedoperationsorusetheprofitstoestablishadditionalnewventuresinthecountry-of-origineconomy.Diasporainvestmentsmayalsobelessvulnerabletocapi-talflightinatimeofcrisis. Theemotionalandsocialdriversofdiasporans’invest-mentinterestmayinspirediasporainvestorsandentre-preneurstoserveaseconomicchangeagents,leveraging
theirinvestmentandnewventurecreationtostrengthenthecountry-of-origineconomy.Oneofthemaingoalsofdiasporaeconomicactivityinthecountry-of-originmaybetogenerateemployment—fortheirfamily,friends,localcommunity,ornation.Thus,diasporainvestorsandentrepreneursmaybemorelikelytoestablishgreenfieldactivitiesratherthanmerelymergewithoracquireexist-ingfirmsinthecountry-of-origineconomy.Theymaypreferlocalinputsandemployeesoverimportedproductsandlabor,makingthemmorelikelytostrengthenandcultivatelocalsupplychains. Thepresenceofdiasporainvestorsandentrepreneursinthecountry-of-origin’seconomyalsomaycontributetotheinternationalizationofdomesticfirmsinthecoun-try-of-originbyenhancinglocalfirms’transnationalsocialcapital.Diasporainvestorsandentrepreneursoftensharemarketinformationabouttheircountry-of-residencewithotherentrepreneursandfirmsinthecountry-of-origin,suchasinformationaboutimportandoperationalregula-tions,consumerdemand,andcompetitiveintelligence.Domesticfirmscanutilizeconnectionsthattheyhavewithdiasporainvestorsandentrepreneurstotapintothe
DIASPORA CAPITAL INVESTMENT PROJECTWHAT ARE THE NECESSARY FACILITATING INSTITUTIONS?
IntEnt Field & Survey Studies
WHAT IS THE MARKET POTENTIAL?WHAT ARE THE PSYCHOLOGICAL DRIVERS?Diaspora Investment Motivation Study
HOW CAN GOVTS ATTRACT DDI & D-ENTREP?UN Cross-National Policy Comparison StudyInvestment Promotion Agency Study
WHAT IS THE EFFECT ONINSTITUTIONS & DEVELOPMENT?Change-Agent Case Study Project
WHAT ARE THE DIFFERENT BUSINESS ENVIRONMENT PERCEPTIONS & FIRM PERFORMANCE?Matched Sample Study
PRE�INVESTMENT
INVESTMENT POST�INVESTMENT
32 ESR—Fall 2008
diasporainvestor/entrepreneurs’transnationalnetworkstoidentifybusinessleads,opportunities,andfinancinginmarketsabroad.Diasporainvestorsandentrepreneurscanserveasreputationalintermediariesfordomesticfirmsinforeignmarkets. Migrantswhoventureabroadoftengainknowledgeandskillsthatarelackinginthecountry-of-origin.Whentheyreturntoinvestorstartanewbusiness,theyremitthisacquiredhumancapitalbacktotheorigincountry,therebyturning“braindrain”into“braingain.”Diasporainvestorsandentrepreneursalsoserveastransnationalknowledgelinkages,contributingtothediffusionoftech-nologyandproductionknow-howfromindividualsinthecountry-of-origintothecountry-of-residence. Diasporansmaybeinterestedininvestingintheirhomecountriesbutmaybeinhibitedorunabletodosoduetoalackofavailabletime,financialresources,know-how,and/orotherconstraints.Newinvestmentvehiclesarebecomingavailablethatallowdiasporansanopportu-nitytoinvestintheircountries-of-originquickly,easily,andwithsmallamountsofcapital—allwithouteverleavingtheircountry-of-residence.Forexample,diaspo-ranscanlendmoneytofirmsbackintheirhomecountryatbelow-marketratesofinterestthroughorganizationslikeKiva6andInvestorswithoutBorders.7Somediasporaorganizationshaveestablishedventurecapitalfundsthatpurchaseequityinbusinessesinthecountry-of-origin.Somegovernments,suchasthoseofIsraelandIndia,havetargetedbondofferingstotheirdiasporacommuni-tiesabroad.Insomecases,diasporansinvestincompanieslistedonthestockexchangeoftheircountry-of-originorpurchasemutualfundsconsistingofcompaniesfromtheirhomecountry.
The GW Diaspora Capital Investment ProjectExistingresearchconcerningdiasporainvestmentandentrepreneurshipisscant,andthemajorityofcurrentscholarshipistheoreticalorbasedonanecdotalevidence.Thus,thepolicyandmarketingeffortsundertakenbygov-ernments,aidagencies,multilaterals,andNGOsarebeingcraftedandexecutedbasedmostlyonhopeandconjecture,withoutthebenefitofrichandrobustscientificdata.TheGWDiasporaCapitalInvestmentProject(GW-DCIP)seekstofillthisinformationvacuum. Formedin2006byGWprofessors,Drs.LieslRiddleandTjaiNielsen,theGW-DCIPisacollabora-tiveresearcheffortoffacultyandstudentsfromavarietyofacademicdisciplinesacrosstheuniversity,includingeconomics,internationalaffairs,internationalbusiness,
management,andpublicadministration.Theresearchteamisengagedinseveraldifferentstudiesofdiasporainvestmentandentrepreneurshipdesignedtoprobethephenomenonlongitudinallyfromthepre-investment,investment,andpost-investmentphases(seeFigure1).GW-DCIPispartofGW’sDiasporaProgram,abroaderresearchinitiativeattheuniversityexploringtherelation-shipbetweendiasporas,development,andpolicy.8
Thefirstgoaloftheresearchinitiativeistobetterunderstandtowhatextentandwhydiasporansareinter-estedininvestingintheirhomecountries.Inthislineofinquiry,theGW-DCIPaimstoestimatethemarketpotentialwithinandacrossgivendiasporagroupsforvariousinvestmentcategories,suchassettingupserviceormanufacturingfacilities,purchasinghomecountrybonds,orcontributingtoventurecapitalorlendingfundsintheircountries-of-origin.Acentralobjectiveofthisresearchistoidentifywhetherdiasporansinterestedininvestingorstartinganewcompanyintheircountry-of-originfitaparticulardemographicprofileorsharesimilarpsychologicalmotivationsforinvestment.
The experiences and
opportunities they are
exposed to in their
countries-of-residence
inspire them to
contribute to the
development of their
countries-of-origin.
33
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GW-DCIPhascreatedtheDiasporaInvestmentMotivationSurveytogenerateanswerstothesequestions.Currently,GW-DCIPisworkingwithorganizationsinAfghan,Lebanese,andLiberiandiasporaintheUnitedStatestoadministerthesurveyintheirrespectivecom-munities.AlthoughtheDiasporaInvestmentMotivationSurveycouldbeadministeredtoanydiasporacommunity,GW-DCIPisfocusingtheirdatacollectioneffortsonthesepost-conflictcountriesbecauseofthesignificantcapitalrequirementsneces-sarytorebuildanddevelop
thesecountries.TheteamplanstoextendtheDiasporaInvestmentMotivationSurveytoAfghan,Lebanese,andLiberiandiasporacommunitiesoutsideoftheUnitedStatesandtootherdiasporagroupsinthenextphaseofresearchtobroadenthedatabaseandenhancethegeneral-izabilityandcomparabilityofthestudyfindings. TheGW-DCIPalsoisengagedinresearchtoidentifywaysthatgovernmentscanattractdiasporainvestmentandentrepreneurshipthroughmarketingandotherpro-motionalefforts.ThestudyteamwascommissionedbytheUnitedNationstoconductacross-nationalcom-parisonofpoliciestopromotediasporainvestmentandentrepreneurshipforaforthcomingvolumeondiasporasanddevelopment.In2009,workinginconjunctionwiththeWorldBank’sForeignInvestmentAdvisoryService,GW-DCIPwilladministerasurveytoallnationalinvest-mentpromotionagenciesintheworldtocatalogthevariousservicesandorganizationalchangestheseagen-cieshaveputinplacetoencourageandsupportdiaspora
investment,andtoassesstheperceivedeffectivenessoftheseprograms. GW-DCIPisparticularlyinterestedinidentifyingwaystoturndiasporainvestmentandentrepreneurshipinterestintomeaningfulinvestmentinthecountry-of-ori-gin.Discerningtheobstaclesthatnascentdiasporainves-torsandentrepreneursfaceisanimportantfirststep.Butinsomecases,facilitatinginstitutions—organizationsthat
providepotentialinvestorsandentrepreneurswiththeskillsandknowledgethattheyneedtoover-comethoseobstaclesandbringtheirinvestmentornewventuretolife—maybenecessarytogeneratesufficientdiasporainvest-mentactivity.GW-DCIPhasconductedfieldstudieswithIntEnt,abusinessincubatorlocatedintheNetherlands,tobetterunderstandthehurdlesthatnewdiasporainves-torsandentrepreneursfaceandtherolethatbusi-nessincubatorscanplayinhelpingturndiasporans’investmentinterestintoaninvestmentreality.LongitudinalfieldstudieswithrecipientsofIntEnt’s
businessincubatorservicesalsoareplannedtoshedlightonhowthechallengesandneedsofdiasporainvestorsandentrepreneurschangeovertimeduringtheinvest-mentprocess. Mostimportantly,GW-DCIPinvestigatesthewaysinwhichdiasporainvestmentandentrepreneurshipaffectthepolitical,economic,andsocialdevelopmentoftheircountries-of-origin.Theteamiscurrentlydevelopingacompendiumofexploratoryin-depthcasestudiesofdiasporainvestorsandentrepreneurswhoseinvestmentshavebroughtaboutsignificantpositivechangeintheirrespectivecountries-of-origin.Collectedforteachingandresearchpurposes,thecasestudiesilluminatecommonali-tiesininvestmentmotivationandvisionandcontrastingavenuesforinnovativechangeanddevelopmentimpact. Theteamhasalsobeguntoinvestigateotherpost-investmentrelatedissues.Forexample,apilotstudy
Migrants remit
their acquired human
capital back to the
origin country, thereby
turning “brain drain”
into “brain gain.”
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ABOUT THE AUTHOR
Liesl Riddle is an associate professor of international
business and international affairs and is the co-direc-
tor of the GW Diaspora Program at the George
Washington university. Riddle has written extensively
on diasporas and development, international entrepre-
neurship, and trade and investment promotion. she
has conducted fieldwork in Egypt and turkey and in
diaspora communities in the united states and Europe
and is a member of a united Nations’ advisory panel
concerning diaspora investment and entrepreneur-
ship policies. Riddle holds master’s degrees in Middle
Eastern studies, and marketing and international busi-
ness, and she received her doctorate in sociology.
utilizinganindustrymatchedsamplehasbeenlaunchedinGhanatoexploreperformanceandotherdifferencesamongdiasporaforeigninvestmentfirms,non-diasporaforeigninvestmentfirms,andlocalfirms.
Conclusion
“Nogolddidtheyfind,Underneathanystone
Theytouchedandturned,Yet
Everystonetheytouched,Intosolidgoldtheyturned.”
—VishwamitraGangaAashutosh
RecitingthisquoteinanaddressatthePravasiBharatiDivas(Non-ResidentIndianDay)inNewYorkCityon23September2007,VayalarRavi,India’sministerforoverseasIndianaffairs,eloquentlydescribedthehopesthatmanyhaveforthedevelopmentpotentialofdias-porainvestmentandentrepreneurship.TheGW-DCIPhopestoprovidedatathatwillbetterinformdiasporainvestmentandentrepreneurshippromotioneffortsandenhanceacademicunderstandingofthediasporainvest-mentphenomenon.
Endnotes 1YoshiShain,Kinship and Diasporas in International Affairs(Ann
Arbor,MI:UniversityofMichiganPress,2007),11.
2UNDepartmentofEconomicandSocialAffairs,StatisticsDivision,“ReportoftheExpertGroupMeetingonMeasuringInternationalMigration:ConceptsandMethods,”UnitedNations,http://unstats.un.org/unsd/demographic/meetings/egm/migrationegm06/Final%20REPORT%20L3.pdf.
3MichaelClemensandLantPrittchett,“IncomePerNatural:MeasuringDevelopmentasIfPeopleMatteredMoreThanPlaces”(WorkingPaper#143,WashingtonDC:CenterforGlobalDevelopment,2008).
4http://www.thamel.com5YashengHuangandTarunKhanna,“CanIndiaOvertakeChina?”
Foreign Policy July-August(2003):74–78.6http://www.kiva.org7http://investorswithoutborders.wordpress.com8http://www.gwu.edu/~elliott/researchcenters/diaspora.cfm.
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