Migration Choice under Risk and Liquidity Constraints

Marieke Kleemans

No 200702, 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California from Agricultural and Applied Economics Association

Abstract: This paper develops and tests a migration choice model that incorporates two prominent migration strategies used by households facing risk and liquidity constraints. On the one hand, migration can be used as an ex-post risk-coping strategy after sudden negative income shocks. On the other hand, migration can be seen an as investment, but liquidity constraints may prevent households from paying up-front migration costs, in which case positive income shocks may increase migration. These diverging migratory responses to shocks are modeled within a dynamic migration choice framework that I test using a 20-year panel of internal migration decisions by 38,914 individuals in Indonesia. I document evidence that migration increases after contemporaneous negative income shocks as well as after an accumulation of preceding positive shocks. Consistent with the model, I find that migration after negative shocks is more often characterized by temporary moves to rural destinations and is more likely to be used by those with low levels of wealth, while investment migration is more likely to involve urban destinations, occur over longer distances, and be longer in duration. Structural estimation of the model reveals that migration costs are higher for those with lower levels of wealth and education, and suggests that the two migration strategies act as substitutes, meaning that those who migrate to cope with a negative shock are less likely to invest in migration. I use the structural estimates to simulate policy experiments of providing credit and subsidizing migration, and I explore the impact of increased weather shock intensity in order to better understand the possible impact of climate change on migration.

Keywords: Community/Rural/Urban Development; Environmental Economics and Policy; International Development; Labor and Human Capital; Risk and Uncertainty (search for similar items in EconPapers)
Pages: 63
Date: 2015
New Economics Papers: this item is included in nep-dge, nep-mig and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea15:200702

DOI: 10.22004/ag.econ.200702

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