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Smuggling Humans: A Theory of Debt-financed Migration

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Listed:
  • 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 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. (JEL: J61, K42, O17) (c) 2006 by the European Economic Association.

Suggested Citation

  • Guido Friebel & Sergei Guriev, 2006. "Smuggling Humans: A Theory of Debt-financed Migration," Journal of the European Economic Association, MIT Press, vol. 4(6), pages 1085-1111, December.
    • Handle: RePEc:tpr:jeurec:v:4:y:2006:i:6:p:1085-1111
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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