Borrowing Constraints, Migrant Selection, and the Dynamics of Return and Repeat Migration

This paper analyzes the impact of an exogenous change in household incomes in a migrant’s sending country on migration duration, the incidence of repeat migration and migrant selection. Higher incomes raise the opportunity cost of residing abroad, but also help facilitate a costly migration if households are borrowing constrained. To disentangle these mechanisms and to evaluate the effects of income changes on return and re-migration choices, I formulate a dynamic life cycle model of consumption, employment, emigration, return and repeat migration. Households may borrow up to an endogenous limit that gives higher-income households better access to credit. Given unobserved heterogeneity in productivity and the preference for migrating, identification of this income dependence of borrowing limits requires exogenous variation in income. I thus exploit a policy experiment that randomly allocated cash transfers in Mexico. I find that an increase in income in Mexico increases both the average number of trips per migrant and the responsiveness to economic conditions. The effect on return migration makes immigrants staying at the destination more positively selected, which has important implications for the assessment from a U.S. perspective of migrations that have been induced by higher incomes in Mexico. JEL codes: J61, O15, F22, D31