Remittances, savings and return migration under uncertainty

Recent empirical evidence links migrant remittances and return migration, and stresses the impact of uncertainty on migrant decisions. Theoretical analyses of the motives for remittances generally neglect these features, and do not include alternative strategies such as savings, which potentially have very different implications for both migrants and origin countries. This paper presents a model of endogenous remittances, savings and return decisions under uncertainty. This setting, which applies to long-term international migration, addresses the following questions. Which migrant characteristics affect their remittance-saving portfolio decisions? How do these decisions interact with migration success and return plans? In our framework, migrants make remittance and saving decisions at an early stage of migration, when migration success and return options are uncertain. Over time, information about professional prospects is acquired, and conditionally on past decisions, migrants adjust their return plans. We show that migrants anticipating a large wage in the host country, or a relatively low risk of migration failure are less likely to remit and to return, and more likely to save. These results are in line with recent empirical evidence, such as the large share of non-remitting migrants, the fact that migrants facing higher risks are more likely to remit, and the potentially poor economic performance of returnees. Finally, we provide a rationale for the support by relatives in the sending country of low-skill, illegal migration.