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

Author Info

  • 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
Date of revision:
Handle: RePEc:mie:wpaper:513
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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. 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.
  2. Yang, Dean, 2005. "International migration, human capital, and entrepreneurship : evidence from Philippine migrants'exchange rate shocks," Policy Research Working Paper Series 3578, The World Bank.
  3. 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 274-98, April.
  4. 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 165-76, February.
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  8. Rodrik, Dani, 2002. "Feasible Globalizations," CEPR Discussion Papers 3524, C.E.P.R. Discussion Papers.
  9. 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 552-59, November.
  10. Borjas, George J, 1989. "Immigrant and Emigrant Earnings: A Longitudinal Study," Economic Inquiry, Western Economic Association International, vol. 27(1), pages 21-37, January.
  11. 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 808-27, August.
  12. Alice Mesnard, 2004. "Temporary migration and capital market imperfections," Oxford Economic Papers, Oxford University Press, vol. 56(2), pages 242-262, April.
  13. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 407-441.
  14. Galor, Oded & Stark, Oded, 1990. "Migrants' Savings, the Probability of Return Migration and Migrants' Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May.
  15. Robert J. LaLonde & Robert H. Topel, 1994. "Economic Impact of International Migrationand the Economic Performance of Migrants," University of Chicago - George G. Stigler Center for Study of Economy and State 96, Chicago - Center for Study of Economy and State.
  16. 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.
  17. Djajic, Slobodan & Milbourne, Ross, 1988. "A general equilibrium model of guest-worker migration : The source-country perspective," Journal of International Economics, Elsevier, vol. 25(3-4), pages 335-351, November.
  18. Stark, Oded & Helmenstein, Christian & Yegorov, Yuri, 1997. "Migrants' Savings, Purchasing Power Parity, and the Optimal Duration of Migration," Economics Series 44, Institute for Advanced Studies.
  19. Hill, John K., 1987. "Immigrant decisions concerning duration of stay and migratory frequency," Journal of Development Economics, Elsevier, vol. 25(1), pages 221-234, February.
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