Impact of Microcredit on Labour Migration Decisions: Evidence from a Cambodian Household Survey

The new economics of labour migration (NELM) suggests that migration substitutes for inaccessible credit markets. However, in a paradigm shift towards profit orientation, microfinance organizations in developing countries offer greater access to credit to potential migrants. That casts doubt on the prior understanding of the link between access to microcredit and migration. Exploiting survey data from 422 households in the northern part of Cambodia, this study examines the relationship between microcredit borrowing and migration decisions through the NELM theory in the South-South Migration (SSM) perspective. We employ the Endogenous Switching Probit model (ESP) to control for selection bias in borrowing decisions and the structural differences between borrowing and non-borrowing decisions that influence migration decisions. After instrumenting, the findings suggest that households with access to credit are more likely to have migrated family members than their non-borrowing counterparts, refuting the notion of migration as a substitute for credit. Household with borrowings from financial institution increase the likelihood of migrating by 5.6 percent while households with informal borrowing have a propensity to migrate about 3.2 percent. Our results have a number of policy implications, including guiding policymakers in rethinking the role of microcredit provision and redesigning microfinance programmes to maximise the return on labour migration.