Why don’t more people migrate?

Credit constraints matter.

This paper investigates the extent to which financial constraints limit international labor migration flows in a developing country context. Income growth in these settings can have two countervailing effects. Rising income may relax liquidity constraints that prevent profitable migration among poor households. However, higher income also implies smaller wage gaps with rich countries and a higher opportunity cost of migrating.

…I then test for financial constraints in Indonesia using new administrative panel data on international migration from 66,000 villages. I capture income variation arising from transitory rainfall shocks and a large, sustained increase in domestic rice prices following an unanticipated ban on rice imports.

…positive rainfall and rice price shocks are associated with an increase in international migration rates between 2005 and 2008.

…I find on the intensive margin that rainfall and rice price shocks lead to significant increases in the share of village residents working abroad. Furthermore, the elasticity of flow migration rates with respect to these shocks is higher in villages with a greater mass of small landholders. On the extensive margin, villages with a greater mass of large landholders are more likely to have any migrants.

Both findings are consistent with binding financial constraints in the model.

A new paper by Sami Bazzi, a UCSD job market candidate.

18 thoughts on “Why don’t more people migrate?

  1. Look, I love a well-identified empirical strategy as much as the next econ grad student, but this topic is frustrating!

    The wage differentials between developing and developed countries are HUGE, and much smaller gaps led to mass migration between Europe and the US in a time when Skype and airplanes didn’t exist.

    This topic is ripe for action, if citizens in rich countries actually gave a damn. What’s the marginal benefit of an economic article? No, if anything the meaningful change will come from policy, or advocacy, to soften immigration controls. And if you care about poverty, you better hope that such a change will come…

    Lant Prichett’s book “Let their people come” reads as true today as in 2006. BUT no one in my grad school ever mentioned it.

  2. @mzabek: Angelucci’s paper is a very nice contribution to this literature. Her study–similar to another recent RCT study from Bangladesh by Bryan, Chowdhury, and Mobarak–is focused on the poorest potential migrants in the population. Using the approach that I develop in the paper, we can go beyond those poorest households to examine the overall response of (village-level) emigration flows to changes in individual incomes along the wealth distribution.

    @Gabriel: All excellent points and ones which I agree with wholeheartedly. Policy barriers to labor mobility are among the largest distortions in the global economy. There are a few recent general equilibrium studies documenting the magnitude of these distortions. My argument is that even in the absence of large policy barriers, the costs of undertaking of otherwise profitable migration opportunities may still exceed the financial means of poor households. My empirical strategy allows me to hold constant these important policy barriers and focus on these potential financial barriers. In future work, I aim to extend my approach to a multi-country gravity model framework that will allow for examining the consequences of policy barriers more formally using some new data I’ve put together on global migration flows.