Playing a foreign investor’s behavioural biases

Posted by

Richard H Thaler ( @R_Thaler ) received the Nobel Prize in Economy for his contributions to behavioural economics : breaking away from the assumption that “people are highly-rational – super-rational – and unemotional” investors.

At NamSor, we’ve work on several investment and trade projects, using NamSor sociolinguistics software to target and engage potential diaspora investors from a given country, assuming that the individual investor will a positive bias towards his/her country of origin.

On a macro-scale, several economy papers have proved the positive correlation between migration and foreign investment or trade. For example, in the recent paper “The relation between migration and FDI in the OECD from a complex network perspective”, Antonios Garas, Athanasios Lapatinas and Konstantinos Poulios conclude that “Diasporas in the OECD attract FDI to their origin countries and this result can be mostly explained by countries’ economic, demographic and geographic characteristics. Our main findings though suggest that bilateral FDI increases the more inward central in the migration network pairs of countries are. Moreover, migrants originated from overlapping ‘third party’ countries can be FDI enhancing. We have also found that outward FDI is positively associated to inward migration: migrants in country 𝑗𝑗 originated from country 𝑖𝑖 attract FDI in their origin country 𝑖𝑖 from destination country 𝑗𝑗. Interestingly, our results indicate that the larger the diversity of migration channels and the stock of immigrants from ‘third-party’ origins towards any two countries that are FDI connected, the higher the stock of foreign capital in the FDI-host country originated from the FDI-parent country. Our findings remain robust to alternative count data estimation techniques.”

When it comes to decision making and doing something to attract foreign investors towards a given location and asset class, we’ve found cultural biases to be complex to analyse on macro-scale. For example, some diasporas have a poor opinion of their country of origin. Would you invest in a country of origin perceived as bureaucratic or corrupt, compared to the country you live in? Would you risk to making introductions to your professional network, on you home country’s behalf and its people, unless you trust its governance and policy?

The more targeted (by sector/by geography), the easier a bond of trust can be re-created between an investment promotion agency and the country’s diaspora. For example, we’ve worked on successful projects in the field of IT outsourcing, biotechnologies, ICT and start-ups, bio-economy, … our approach is to mine professional databases, identify the right individuals and organizations to reach out to, engage them via a digital campaign in the social media and follow-up the leads using a customized CRM system (such as NationBuilder or SalesForce).

Diasporas have a positive impact on trade and foreign investment, but it is critical to engage them in a targeted manner and make sure any “behavioural biases” will work in the favour of investing in YOUR country.

About FDI Magnet

FDI Magnet is NamSor™ offering for Investment Promotion. We use our unique data mining software to offer differentiated Foreign Direct Investment (FDI) services.
Follow @FDIMagnet, join the LinkedIn group

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s