Diaspora Engagement Institutions and Venture Investment Activity in Developing Countries

Abstract

The research and policy importance of the worldwide diaspora has never been greater, given the approximately 250 million individuals worldwide living outside their countries of origin, remitting $583 billion dollars annually, the vast majority of which is sent to the developing world. In response to this, the majority of countries worldwide have formed formal governmental bodies—which I term Diaspora Engagement Institutions (DEIs)—dedicated to addressing diaspora-related issues. This dissertation study examines whether and under what circumstances developing country DEIs increase venture activity that is the backbone of innovation, economic growth, and poverty reduction in the developing world. Using Social Exchange and Organizational Identification as theoretical backdrops, I propose that these DEIs induce loyalty and reciprocity in diaspora members which then increase or facilitate investment into the home country. I first explore how remittances and the presence of a DEI impact new venture activity. I then examine how characteristics of the DEI, the diaspora population, country of origin, and transnational characteristics moderate this impact by changing the salience or strength of the social exchange obligation and social identification. The results suggest that DEIs increase the investment impact of remittances primarily for venture founding, but not for funding availability, and outline several contingencies under which developing countries that form DEIs can increase the strength of the diaspora identification with and loyalty toward the country of origin.