Social connectedness and inflow foreign direct investment: evidence from an emerging market

This paper investigates the relationship between social networks, as measured by friend connections from Facebook (Social connectedness index - SCI), and Foreign Direct Investment (FDI) inflows into Vietnam from 2010 to 2022. Our findings reveal that social connectedness significantly influences FDI inflows, indicating that social connections are vital in attracting foreign investments into Vietnam. The result is robust for numerous model specifications, including subsampling, controlling for known FDI determinants, fixed-effect, and an instrumental variable strategy. We establish that SCI affects FDI by reducing information friction. In cross-sectional analysis, factors such as policy uncertainty, bilateral trade and ease of doing business can diminish the impact of social media connections.