Finance & Investing

Could Infusion of Foreign Capital Be a Cure for Xenophobia?

Communities look more favorably on immigrants when investments help boost the local economy.

March 31, 2020

| by Dylan Walsh


A girl holds a U.S. and Chinese flag. Credit: Reuters/Kevin Lamarque

When Chinese investments in American real estate have tangible economic benefits, local biases against immigrants decreases. | Reuters/Kevin Lamarque

As he prepared to ascend to the Chinese presidency in 2013, Xi Jinping made an ominous pronouncement: “Power should be restricted by the cage of regulations.” And with that, he kicked off a nationwide anti-corruption campaign.

The campaign led to thousands — by now, millions — of investigations into ill-gotten gains. It also spurred a rush of investment into the U.S. real estate market: In 2013 alone, Chinese investors surpassed Canadians as the largest foreign buyers of U.S. homes, and for the next three years their investment grew by roughly $8 billion per year.

“This flight of investment into housing markets was well covered in the media,” says Neil Malhotra, the Edith M. Cornell Professor of Political Economy at Stanford GSB. “But we wanted to investigate what kind of impact exposure to these investments had on views of foreign immigrants.”

Did a sudden influx of capital change public attitudes?

With two professors from the University of California, Riverside, Malhotra pulled together diverse strands of information to answer this question. In their recent paper, published in Nature Human Behavior, they found that overseas investment appears to reduce xenophobia.

The Undergraduate Thesis

To begin, the researchers needed to connect how people feel about immigration with data on home purchases. Unfortunately, systematic data on U.S. home purchases by Chinese nationals doesn’t exist; what’s more, many of these purchases are conducted anonymously by shell corporations. In looking for a way around this informational void, the researchers alighted on the population of Chinese undergraduates in a given zip code. This data is reliably kept by Immigration Customs and Enforcement and serves as an attractive proxy: Most of these students come from affluent families that, in 2013, invested in local real estate to both support their children and move money abroad. Malhotra and his team found that increases in the Chinese undergraduate population tracked increases in housing prices.

The researchers next sought survey data on public attitudes about immigration. “We came across a dataset that interviewed the same people on issues of immigration in 2010, 2012, and 2014,” Malhotra says, providing a three-year panel that nicely aligned with China’s anti-corruption campaign. “We could look for effects in 2014 and use the previous two years to make sure we weren’t picking up some kind of change unrelated to the campaign.”

The researchers found that zip codes with a higher percentage of Chinese undergraduates expressed greater support for pro-immigration policies and lower support for anti-immigration policies — and less fear about China too. For example, more residents in these communities said the U.S. should “grant legal status to all illegal immigrants who have held jobs and paid taxes for at least three years and not been convicted of any felony crime.” And fewer believed that police should be able to question anybody believed to be in the country illegally.

To confirm that the attitudinal shift was in response to an influx of capital and not an increase in the population of Chinese immigrants, Malhotra and his team ran several robustness checks. “Placebo tests” were conducted in zip codes with either high levels of Chinese graduate students or Indian undergraduates — and both revealed no change in sentiment around immigration policy. Chinese grad students tend to come from families that aren’t as wealthy as families of undergrads and therefore don’t invest in U.S. housing.


This flight of investment into housing markets was well covered in the media, but we wanted to investigate what kind of impact exposure to these investments had on views of foreign immigrants.
Neil Malhotra

The fact that there was no change in sentiment in these areas suggests there wasn’t an underlying opinion change specific to Chinese immigrants. And because India had no anti-corruption campaign, the fact there was no discernible shift in sentiment in those zip codes suggests the change is tied to Chinese undergrads. Based on these findings, Malhotra and his colleagues argue that it’s reasonable to infer that it is related to the real estate investments.

Though objectively defining the magnitude of the change is difficult, the researchers compared what they found to the well-established effect of education on immigration policy preferences.

“It’s well known that one of the biggest predictors of attitudes on immigration, and globalization generally, is education,” Malhotra says. Residents with higher levels of education tend to demonstrate more support for outward-looking policies. “Comparing the results we got with the effect of education made us comfortable in saying these are non-negligible, that they meaningfully affect attitudes.”

Policy Preferences Rooted in Economics

Malhotra and his colleagues wanted to determine not only whether such real estate investment influenced attitudes, but also how one might account for the result. What’s the link between these two variables?

Self-interest is one possibility: Homeowners see the value of their houses rise and they look more favorably on their Chinese neighbors. But economic self-interest on its own isn’t enough: Non-homeowners expressed equally positive attitudes toward immigrants generally, and China specifically, in the wake of the anti-corruption campaign.

“It seems that everyone, whether a homeowner or not, is responding in the same way to this capital inflow,” Malhotra says. “This suggests that it’s not just related to pure self-interest, but that it may also have something to do with investment in the community as a whole — and that people are less xenophobic as a result.”

There’s been considerable research directed at demonstrating widespread support for high-skilled immigrants, but very little of this research has tried to find an explanation for the support. This new work, Malhotra suggests, provides a tentative causal link: The benefits flowing into the community move people favorably toward the source of those benefits — in this case, foreign investors who happen to be Chinese.

More broadly, the findings raise questions about people’s views on immigrants of any socioeconomic status, whether or not they’re wealthy enough to buy real estate. “Generally, when politicians make arguments about why immigration policies should be expanded, they do it in terms of our cultural values — we are a nation of immigrants, everyone comes from an immigrant family, and so on,” Malhotra says.

But perhaps a harder sell on the economic benefits would be more effective than appealing to our moral aspirations. Forget about history or matters of ethics. Instead, look to dismantle the myth that immigration depresses wages and emphasize how structurally important immigrant labor is to economic sectors like agriculture. “Our research suggests it may be more beneficial to simply talk about the tangible economic benefits.”

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