Migration, Family, and Risk Diversification
23 Pages Posted: 10 Jul 2001
Date Written: July 10, 2001
This paper proposes a formal model of migration in which workers are heterogeneous and markets are stochastically correlated. We derive and characterize the optimal migration pattern. It is shown to depend on differences in expected earnings, costs of migration, income risks, and more importantly market correlations. We show that migration can take place even when the emigrants earn less abroad and, more surprisingly, when earnings in the foreign country are riskier. Moreover, it may well be an optimal arrangement to have only dependents migrate, thus rationalizing the dependent-oriented migration flows from places like Hong Kong and Taiwan. We also provide some evidence in support of our theory.
Keywords: International Migration, Decision-making under Uncertainty
JEL Classification: C61, D11, D81, D91, E21, F22
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