How Borrowing Constraints Hinder Migration: Theoretical Insights from a RUM Model

Authors: Léa Marchal and Claire Naiditch (Scandinavian Journal of Economics, 2020, Vol. 122(2), 732-761)

We provide a theoretical framework to analyze how financial constraints hinder migration. Introducing wealth heterogeneity and borrowing constraints into a RUM model of migration, we find evidence of multilateral resistance to migration stemming from borrowing constraints. We calibrate the model on 22 European countries and show that omitting the constraints biases upward the estimation of bilateral migration rates. We then simulate an increase in the bilateral cost of migration to the UK. We find that omitting the constraints biases downward the change entailed by the cost increase in the bilateral rates of migration to all destinations.

Keywords: Discrete choice model, Financial constraint, Multilateral resistence to Migration

JEL Classification: F22, J61, O15, C63

DOI: https://doi.org/10.1111/sjoe.12355