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Smuggling Humans: A Theory of Debt-Financed Migration

  • Friebel, Guido

    ()

    (Goethe University Frankfurt)

  • Guriev, Sergei

    ()

    (New Economic School, Moscow)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1025.

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Length: 30 pages
Date of creation: Feb 2004
Date of revision:
Publication status: published in: Journal of the European Economic Association, 2006, 4 (6), 1085-1111
Handle: RePEc:iza:izadps:dp1025
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