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Foreign Aid, Illegal Immigration, and Host Country Welfare

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  • Subhayu Bandyopadhyay
  • Dustin Chambers
  • Jonathan Munemo

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

  • Subhayu Bandyopadhyay & Dustin Chambers & Jonathan Munemo, 2014. "Foreign Aid, Illegal Immigration, and Host Country Welfare," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 372-385, May.
    • Handle: RePEc:bla:rdevec:v:18:y:2014:i:2:p:372-385
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    File URL: http://hdl.handle.net/10.1111/rode.12090
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    References listed on IDEAS

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    1. Chi‐Chur Chao & Shih‐Wen Hu & Ching‐Chong Lai & Meng‐Yi Tai, 2012. "Foreign Aid, Government Spending, and the Environment," Review of Development Economics, Wiley Blackwell, vol. 16(1), pages 62-71, February.
    2. Antonio Spilimbergo & Gordon H. Hanson, 1999. "Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border," American Economic Review, American Economic Association, vol. 89(5), pages 1337-1357, December.
    3. Ethier, Wilfred J, 1986. "Illegal Immigration: The Host-Country Problem," American Economic Review, American Economic Association, vol. 76(1), pages 56-71, March.
    4. Myers, Gordon M. & Papageorgiou, Yorgos Y., 2000. "Immigration control and the welfare state," Journal of Public Economics, Elsevier, vol. 75(2), pages 183-207, February.
    5. Theodore Palivos, 2009. "Welfare effects of illegal immigration," Journal of Population Economics, Springer;European Society for Population Economics, vol. 22(1), pages 131-144, January.
    6. Ethier, Wilfred J, 1986. "Illegal Immigration," American Economic Review, American Economic Association, vol. 76(2), pages 258-262, May.
    7. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
    8. James B. Ang, 2010. "Does Foreign Aid Promote Growth? Exploring the Role of Financial Liberalization," Review of Development Economics, Wiley Blackwell, vol. 14(2), pages 197-212, May.
    9. Faini, Riccardo & Venturini, Alessandra, 1993. "Trade, aid and migrations: Some basic policy issues," European Economic Review, Elsevier, vol. 37(2-3), pages 435-442, April.
    10. Gaytan-Fregoso, Helena & Lahiri, Sajal, 2000. "Foreign aid and illegal immigration," Journal of Development Economics, Elsevier, vol. 63(2), pages 515-527, December.
    11. Subhayu Bandyopadhyay, 2006. "Illegal Immigration and Second‐best Import Tariffs," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 93-103, February.
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    Cited by:

    1. Slobodan Djajić & Michael S. Michael, 2014. "Controlling Illegal Immigration: On the Scope for Cooperation with a Transit Country," Review of International Economics, Wiley Blackwell, vol. 22(4), pages 808-824, September.
    2. Slobodan Djajic & Michael S. Michael, 2016. "Illegal Immigration, Foreign Aid, and the Transit Countries," CESifo Economic Studies, CESifo, vol. 62(3), pages 572-593.

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