Why Do Migrants Return to Poor Countries? Evidence from Philippine Migrants' Responses to Exchange Rate Shocks

Ford School of Public Policy Working Paper No. 04-003

55 Pages Posted: 3 Aug 2004  

Dean Yang

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 2004

Abstract

Why would migrant workers in rich countries ever return to poorer countries of origin? In a model of migration and household investment, with borrowing constraints and minimum investment thresholds, return migration occurs for either target-earnings or life-cycle reasons. This paper exploits a unique quasi-experiment to distinguish between these potential explanations for return migration. I examine how the return decisions of Philippine migrants respond to major and unexpected exchange rate shocks (due to the 1997 Asian financial crisis). Overall, the evidence favors the life-cycle explanation: more favorable exchange rate shocks lead to fewer migrant returns. A 10% improvement in the exchange rate reduces the 12-month return rate by 1.4 percentage points. However, there is evidence that some migrants are motivated by target-earnings considerations: for households with intermediate levels of foreign earnings, more favorable exchange rate shocks have the least effect on return migration, but lead to increases in entrepreneurial income, real property purchases, and vehicle ownership. Overall, the findings are at odds with a model with relaxed constraints on borrowing for household investment.

Keywords: International migration, intertemporal labor supply, credit constraints, exchange rate shocks, entrepreneurship, Asian financial crisis

JEL Classification: D13, F22, J22, O12, O15

Suggested Citation

Yang, Dean, Why Do Migrants Return to Poor Countries? Evidence from Philippine Migrants' Responses to Exchange Rate Shocks (July 2004). Ford School of Public Policy Working Paper No. 04-003. Available at SSRN: https://ssrn.com/abstract=572186 or http://dx.doi.org/10.2139/ssrn.572186

Dean Yang (Contact Author)

University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy ( email )

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HOME PAGE: http://www.umich.edu/~deanyang/

National Bureau of Economic Research (NBER)

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University of Michigan at Ann Arbor - Department of Economics

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