Smuggling Humans: A Theory of Debt-Financed Migration
Goethe University Frankfurt; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
Sergei M. Guriev
New Economic School (NES); Center for Economic and Financial Research (CEFIR); Centre for Economic Policy Research (CEPR)
IZA Discussion Paper No. 1025
We introduce financial constraints in a theoretical analysis of illegal immigration. Intermediaries finance the migration costs of wealth-constrained migrants, who enter temporary servitude contracts to pay back the debt. These debt/labor contracts are more easily enforceable in the illegal than in the legal sector of the host country. Hence, when moving from the illegal to the legal sector becomes more costly, for instance, because of stricter deportation policies, fewer immigrants default on debt. This reduces the risks for intermediaries, who are then more willing to finance illegal migration. Stricter deportation policies may thus increase rather than decrease the ex ante flow of illegal migrants. We also show that stricter deportation policies worsen the skill composition of immigrants. While stricter border controls decrease overall immigration, they may also result in an increase of debt-financed migration.
Number of Pages in PDF File: 30
Keywords: Illegal migration, wealth constraints, indentured servitude, financial contracting
JEL Classification: O15, O17, J61, N21working papers series
Date posted: February 10, 2004
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