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Smuggling Humans: A Theory of Debt-Financed Migration

Author

Listed:
  • Friebel, Guido

    (Goethe University Frankfurt)

  • Guriev, Sergei

    (Sciences Po, Paris)

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 pay back the debt. These debt/labor contracts are more easily enforceable 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 increase rather than decrease the ex ante flow of illegal migrants. We also show that stricter deportation policies worsen the skill composition of immigrants. While stricter border controls decrease overall immigration, they may also result in an increase of debt-financed migration.

Suggested Citation

  • Friebel, Guido & Guriev, Sergei, 2004. "Smuggling Humans: A Theory of Debt-Financed Migration," IZA Discussion Papers 1025, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1025
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    More about this item

    Keywords

    financial contracting; illegal migration; wealth constraints; indentured servitude;
    All these keywords.

    JEL classification:

    • 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
    • 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

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