Diasporas: Exploring their Development Potential

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

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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.

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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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