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Why Do Migrants Return to Poor Countries? Evidence from Philippine Migrants’ Responses to Exchange Rate Shocks

Author Info

Listed author(s):
  • Dean Yang

    (University of Michigan)

Abstract

Why would migrant workers in rich countries ever return to poorer countries of origin? In a model of migration and household investment, with borrowing constraints and minimum investment thresholds, return migration occurs for either target-earnings or life-cycle reasons. This paper exploits a unique quasi-experiment to distinguish between these potential explanations for return migration. I examine how the return decisions of Philippine migrants respond to major and unexpected exchange rate shocks (due to the 1997 Asian financial crisis). Overall, the evidence favors the life-cycle explanation: more favorable exchange rate shocks lead to fewer migrant returns. A 10% improvement in the exchange rate reduces the 12-month return rate by 1.4 percentage points. However, there is evidence that some migrants are motivated by target-earnings considerations: for households with intermediate levels of foreign earnings, more favorable exchange rate shocks have the least effect on return migration, but lead to increases in entrepreneurial income, real property purchases, and vehicle ownership. Overall, the findings are at odds with a model with relaxed constraints on borrowing for household investment.

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File URL: http://fordschool.umich.edu/rsie/workingpapers/Papers501-525/r513.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 513.

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Length: 56 pages
Date of creation: 2004
Handle: RePEc:mie:wpaper:513
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Web page: http://fordschool.umich.edu/rsie/
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Keywords: international migration; intertemporal labor supply; credit constraints; exchange rate shocks; entrepreneurship; Asian financial crisis;

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Find related papers by JEL classification:
  • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
  • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
  • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
  • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
  • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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  1. Timothy J. Hatton & Jeffrey G. Williamson, 2002. "What Fundamentals Drive World Migration?," NBER Working Papers 9159, National Bureau of Economic Research, Inc.
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  8. Dean Yang, 2004. "International Migration, Human Capital, and Entrepreneurship: Evidence from Philippine Migrants’ Exchange Rate Shocks," Working Papers 531, Research Seminar in International Economics, University of Michigan.
  9. Dustmann, Christian & Kirchkamp, Oliver, 2002. "The optimal migration duration and activity choice after re-migration," Journal of Development Economics, Elsevier, vol. 67(2), pages 351-372, April.
  10. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
  11. DaVanzo, Julie, 1983. "Repeat Migration in the United States: Who Moves Back and Who Moves On?," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 552-559, November.
  12. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January.
  13. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
  14. Barry Chiswick & Timothy J. Hatton, 2003. "International Migration and the Integration of Labor Markets," NBER Chapters,in: Globalization in Historical Perspective, pages 65-120 National Bureau of Economic Research, Inc.
  15. Lalonde, Robert J. & Topel, Robert H., 1993. "Economic impact of international migration and the economic performance of migrants," Handbook of Population and Family Economics,in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 14, pages 799-850 Elsevier.
  16. Borjas, George J & Bratsberg, Bernt, 1996. "Who Leaves? The Outmigration of the Foreign-Born," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 165-176, February.
  17. Philippe Aghion & Patrick Bolton, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 151-172.
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  19. Alice Mesnard, 2004. "Temporary migration and capital market imperfections," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 242-262, April.
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