Informational Barriers to Credit for Migrants: Evidence from Guatemala

Does being a migrant in a developing country cause an individual to receive less access to credit? Migrant status can be a useful signal for lenders in settings with weak contract enforcement and in the absence of well-developed information markets. I investigate this contract enforcement-based explanation using data on households that have migrated within Guatemala. To address reverse causality and omitted variable issues, I adopt an instrumental variables approach. I identify individuals who are most sensitive to violence or crime and who were born in particularly dangerous locations; the interaction of these factors causes these individuals to have a higher propensity to move. Although such migrants are not less likely to apply for loans from formal sources, they are significantly less likely to receive them. Furthermore, weak enforcement of contracts dominates alternative explanations of this result, such as moral hazard and adverse selection.