An empirical analysis of Diaspora bonds

Abstract

This study is the first to investigate theoretically and empirically the determinants of Diaspora Bonds for eight developing countries (Bangladesh, Ethiopia, Ghana, India, Lebanon, Pakistan, the Philippines, and Sri-Lanka) and one developed country - Israel for the period 1951 and 2008. Empirical results are consistent with the predictions of the theoretical model. The most robust variables are the closeness indicator and the sovereign rating, both on the demand-side. The spread is not significant, suggesting Diaspora Bonds differ from normal investments. Good governance and wars are also important demand-side determinants of Diaspora Bonds. Among the supply-side factors; FDI, ODA, foreign exchange, inflation, external debt and remittances significantly determine the issue of Diaspora Bonds. Most importantly, this study is able to make predictions of the most promising candidate countries in issuing Diaspora Bonds in the future.