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.