Expanding Borders: Economic Gains from Diaspora Networks

Immigration has been both praised and criticized for its effects on the development of a country. While developing countries invite the cutting-edge ideas that migrants from developed countries have to offer, some fear that unskilled laborers will take domestic jobs and drain the economy. But what if economic gains could be realized on both ends of the spectrum? Diaspora groups have the potential to stimulate development both in their countries of origin and in their countries of residence.

Chinese and Indian Diaspora Groups | Source: The Economist

An article from The Economist points out the extent of diaspora groups and the direct economic benefits reaped by people in the country of origin. In addition to remittances, markets for nostalgia goods (blogged about here), and other forms of aid, diaspora networks create good business opportunities. The article points out three ways that diaspora networks facilitate business, production of goods, and foreign direct investment:

First, they speed the flow of information across borders. Second, they foster trust. Third, and most important, diasporas create connections that help people with good ideas collaborate with each other, both within and across ethnicities.

The given example shows a businessman who needs to import specific goods for his factory in Nigeria. Instead of trying to locate the goods himself, he relies on members of the Nigerian diaspora in China to find reliable sources. Diaspora community members can better navigate the legal/business system, a different language, and can provide trustworthy sources for the products. This is also usually faster than going through external sources and relying upon third party middlemen who have no real investment in the business deal. In contrast to third party negotiators, the author explains that information travels quite quickly through diaspora networks and therefore one’s reputation as a middleman is extremely important to keep intact.

China's Top Investment Providers | Source: The Economist

With people on both ends of the diaspora communities—those still in the country of origin and those that have relocated—benefiting from the business opportunities, investment opportunities also abound. Developing countries view diaspora communities as unique investors in their development process. Emotional and family ties may encourage participation in diaspora bond programs, and allow migrants to demonstrate their sense of patriotism. This allows an external source of financing for countries’ development programs and infrastructure projects in addition to providing an external safety net.

Furthermore, there are also more direct ways for diaspora communities to help their country of origin. The African Diaspora Marketplace seeks entrepreneurs from diaspora communities who have created business plans to invest in their country of origin. These entrepreneurs are better suited than most to determine development gaps in these countries and formulate programs to target them.

Doctor and patient | Source: Fortis Hospitals

Another source for development lies in the increasing number of entrepreneurs and scholars who are educated abroad and then return to their home country with new ideas and business initiatives. This counteracts some effects of the supposed brain drain from migration. Seeing how different systems are organized and managed in other countries has helped entrepreneurs apply much-needed organization to industries that are falling behind. One example is privatized hospitals in India, such as the Fortis Hospitals. Founded by two brothers who were educated in the U.S. Malvinder and Shivinder Singh, the hospitals aggressively recruit doctors who were educated or worked abroad. The Fortis business model has adapted U.S. standards, but with pricing affordable for most Indians.

Overall, diaspora networks are beneficial for both businesses abroad and in the country of origin. Creating connections based on ethnicity and mutual backgrounds adds trust and speed to business deals, in addition to the ability to identify mutual needs. With widespread presence on almost every continent of the world, diaspora groups have the ability to build businesses, collaborate on ideas that foster transnational relationships, and most importantly, encourage development in two places simultaneously.

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