Moving ideas across borders: Migrant inventors, patents and FDI

The purpose of this paper is to gain insights into the exact mechanisms through which migration enhances the innovative performance of multinational firms and fosters Foreign Direct Investment (FDI). We develop a formal model showing that migrants may help firms to increase the perceived quality of their products at the host country of investment. This can be done by patent an invention that permits the customization of products in order to meet foreign quality standards. We focus on a very specific type of migrants: Those who cross borders and patent an invention (migrant inventors). The structural estimation of our model using high-dimensional PPML 2SLS confirms our theoretical priors at both the intensive and the extensive margins. A placebo test reveals that non-inventor migrants are not a good instrument to capture the effect of patents on FDI. Additionally, a structural PPML gravity estimation shows that both patents and migrants inventors fosters Greenfield FDI, with a larger impact on the intensive margin. Our estimations also reveal certain sectoral heterogeneity.