Foreign Aid, Illegal Immigration, and Host Country Welfare

Federal Reserve Bank of St. Louis Working Paper No. 2012-007A

28 Pages Posted: 12 Apr 2012

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Dustin Chambers

Salisbury University - Department of Economics and Finance

Jonathan Munemo

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: March 11, 2012

Abstract

This paper analyzes the effect of foreign aid on illegal immigration and host country welfare using a general equilibrium model. We show that foreign aid may worsen the recipient nation’s terms of trade. Furthermore, it may also raise illegal immigration, if the terms of trade effect on immigration flows dominates the other effects identified in our analysis. Empirical analysis of the effect of foreign aid on illegal immigration to the United States broadly supports the predictions of our theoretical model. Foreign aid worsens the recipient’s terms of trade. While the terms of trade effect tends to reduce illegal immigration, countervailing effects are found to dominate. The paper contributes to the related literature by establishing that there are unintended consequences of foreign aid, and, while some of them are reminiscent of the classical transfer problem, others are new and arise due to endogenous illegal immigration flows.

Keywords: Foreign aid, illegal immigration, terms of trade, transfer problem, tied aid

JEL Classification: F1, F35, O1

Suggested Citation

Bandyopadhyay, Subhayu and Chambers, Dustin and Munemo, Jonathan, Foreign Aid, Illegal Immigration, and Host Country Welfare (March 11, 2012). Federal Reserve Bank of St. Louis Working Paper No. 2012-007A. Available at SSRN: https://ssrn.com/abstract=2038580 or http://dx.doi.org/10.2139/ssrn.2038580

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Dustin Chambers

Salisbury University - Department of Economics and Finance ( email )

Salisbury, MD 21801
United States

Jonathan Munemo

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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