Coupling and decoupling of ancestral linkages and current cross-border economic activities: Genetics and policy

This paper studies the potential link between the biological evolution of populations and present-day economic interactions by estimating the correlation of shared ancestry among populations with cross-border capital and human flows. To this end, we employ the new concept of genetic distance, based on (dis)similarity of neutral gene alleles, to quantify shared ancestry. We then incorporate the genetic distance measure into an augmented gravity model, traditionally used to analyze the effect of geographical distance on bilateral exchange. Our analysis focuses on bilateral foreign direct investment (FDI) and migration across 135 countries and we use both linear regression techniques as well as the Poisson Pseudo-Maximum Likelihood Estimator to account for any non-linearities in the model. Our results show that a 1% increase in genetic distance reduces FDI flows by 0.08% while controlling for other distance constructs and factors associated with global capital and human movement. Genetic distance also has a negative effect on migration, where a 1% increase in genetic distance reduces migration flows by 0.22%, with all other things remaining constant. Our study, therefore, links shared ancestry with economic behavior, showing how historical connections are associated with current economic exchanges among nations. Additionally, recognizing that ancestral ties are outside human control, we examine policy measures that help nations overcome such distance barriers. Our findings show that strengthening a nation’s institutional quality and adherence to the rule of law can effectively mitigate any negative correlation of distance constructs with economic exchanges. These insights suggest that prudent policies to foster a stable business environment are essential for any nation to attract FDI and human capital, even from geographically or genetically distant nations.