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Smuggling Humans: A Theory of Debt-Financed Migration

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  • Guido Friebel

    ()
    (University of Toulouse (EHESS and IDEI), CEPR, IZA)

  • Sergei Guriev

    ()
    (New Economic School/CEFIR and CEPR)

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 repay the debt. These debt/labor contracts are easier to enforce 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, for instance, because of stricter deportation policies, fewer immigrants default on debt. This reduces the risks for intermediaries, who are then more willing to finance illegal migration. Stricter deportation policies may thus, ex ante, increase rather than decrease the flow of illegal migrants. Furthermore, stricter deportation policies worsen the skill composition of immigrants. While stricter border controls decrease overall immigration, they may result in an increase of debt-financed migration. We also show that there are complementarities between employer sanctions and deportation policies. We use available evidence to check the empirical consistency of the theory.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0058.

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Length: 31 pages
Date of creation: Feb 2002
Date of revision: Dec 2005
Publication status: Forthcoming in the Journal of European Economic Association
Handle: RePEc:cfr:cefirw:w0058

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Keywords: Illegal migration; wealth constraints; indentured servitude; financial contracting;

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References

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  13. Francisco L. Rivera-Batiz, 1999. "Undocumented workers in the labor market: An analysis of the earnings of legal and illegal Mexican immigrants in the United States," Journal of Population Economics, Springer, vol. 12(1), pages 91-116.
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