Foreign Aid, Illegal Immigration, and Host Country Welfare

14 Pages Posted: 3 Apr 2014

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

Salisbury University

Multiple version iconThere are 2 versions of this paper

Date Written: May 2014

Abstract

This paper analyzes the effect of foreign aid on illegal immigration and host country welfare using a general equilibrium model. It shows 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 USA 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 as a result of endogenous illegal immigration flows.

Suggested Citation

Bandyopadhyay, Subhayu and Chambers, Dustin and Munemo, Jonathan, Foreign Aid, Illegal Immigration, and Host Country Welfare (May 2014). Special Issue: Issues in Asia. Guest Editor: Laixun Zhao, Vol. 18, Issue 2, pp. 372-385, 2014. Available at SSRN: https://ssrn.com/abstract=2419770 or http://dx.doi.org/10.1111/rode.12090

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

Salisbury University ( email )

1101 Camden Ave
Salisbury, MD 21801
United States

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