Working Paper: CEPR ID: DP4305
Authors: Guido Friebel; Sergei Guriev
Abstract: 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/labour 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 because of, for instance, stricter deportation policies, fewer immigrants default on debt. This reduces the risksfor 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 debtfinanced migration.
Keywords: financial contracting; illegal migration; indentured servitude; wealth constraints
JEL Codes: J61; N21; O15; O17
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| stricter deportation policies (K37) | increase the flow of illegal migrants (F22) |
| stricter deportation policies (K37) | higher likelihood of debt repayment among illegal migrants (K37) |
| higher likelihood of debt repayment among illegal migrants (K37) | increase in financing of migrants through debt-labor contracts (F24) |
| stricter deportation policies (K37) | worsen the skill composition of immigrants (J69) |
| stricter border controls (F55) | decrease overall migration (F22) |
| stricter border controls (F55) | increase in debt-financed migration (F65) |