Research

Good friends in uncertain times: Social connectedness and foreign direct investment

with Oliver Rehbein

This paper shows that cross-country social networks can mitigate uncertainty in the context of foreign direct investment (FDI). We first document an economically important relationship between social connectedness -- measured through Facebook friendship links -- and FDI. We exploit genetic distance as a novel instrument to establish a plausible causal link. Social connectedness is particularly important when political, economic, and institutional uncertainty is high. Our results suggest that interpersonal connections are one possible channel to resolve frictions arising from increasing global political and economic uncertainty. 

Close by or closed by? Bank branches and the rise of fintech mortgages

Online mortgage providers flourished over the last decade, while banks downsized branch networks. This paper explains how rising market shares of fintech lenders in the residential mortgage market affect the number and distribution of US bank branches. Increasing fintech market shares are associated with a decreasing number of bank branches. The results hold across different models as well as spatial levels. The debranching is more pronounced for small banks and leads to lower deposits. To strengthen identification, a geographically purged version of Facebook's Social Connectedness Index to Wayne County, home of the headquarter of the largest fintech lender Quicken Loans is used as instrumental variable for fintech market shares.

Flooded friends - Peer effects in flood insurance decisions

This paper investigates peer effects in homeowners' decision to insure their property against elemental damages. To do so, the 2021 flood in the Western parts of Germany is used as a shock to estimate a difference-in-difference model, leveraging real-world social networks, measured through friendship links on Facebook. The analysis focuses on regions unaffected by the flood, exploiting differences in the connectedness to the flooded regions. Results demonstrate a significant effect of social connectedness on insurance variables: A doubling of social connectedness leads to a 5.2 % - 6.2 % increase in policies, premiums, and coverage.

FDI inflows and social capital in Germany