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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. We show 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 United States 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 due to endogenous illegal immigration flows.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-007.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-007

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Keywords: Foreign aid program ; Immigrants ; Public welfare;

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  1. Gordon M. Myers & Yorgos Y. Papageorgiou, 1997. "Immigration Control and the Welfare State," Working Papers 97001, University of Waterloo, Department of Economics, revised Jan 1997.
  2. 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.
  3. Subhayu Bandyopadhyay, 2006. "Illegal Immigration and Second-best Import Tariffs," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 93-103, 02.
  4. Brecher, Richard A. & Bhagwati, Jagdish N., 1982. "Immiserizing transfers from abroad," Journal of International Economics, Elsevier, vol. 13(3-4), pages 353-364, November.
  5. Theodore Palivos, 2009. "Welfare effects of illegal immigration," Journal of Population Economics, Springer, vol. 22(1), pages 131-144, January.
  6. Gaytan-Fregoso, Helena & Lahiri, Sajal, 2000. "Foreign aid and illegal immigration," Journal of Development Economics, Elsevier, vol. 63(2), pages 515-527, December.
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