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Title: Smuggling Humans: A Theory of Debt-Financed Migration

Author(s): Guido Friebel and Sergei Guriev

Publication Date: March 2004

Keyword(s): financial contracting, illegal migration, indentured servitude and wealth constraints

Programme Area(s): Institutions and Economic Performance, Labour Economics and Transition Economics

Abstract: We introduce financial constraints in a theoretical analysis of illegal immigration. Intermediaries finance the migration costs of wealth-constrained migrants, who enter temporary servitude contracts to pay back the debt. These debt/labour contracts are more easily enforceable in the illegal than in the legal sector of the host country. Hence, when moving from the illegal to the legal sector becomes more costly because of, for instance, stricter deportation policies, fewer immigrants default on debt. This reduces the risks for intermediaries, who are then more willing to finance illegal migration. Stricter deportation policies may thus increase rather than decrease the ex ante flow of illegal migrants. We also show that stricter deportation policies worsen the skill composition of immigrants. While stricter border controls decrease overall immigration, they may also result in an increase of debt-financed migration.

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Bibliographic Reference

Friebel, G and Guriev, S. 2004. 'Smuggling Humans: A Theory of Debt-Financed Migration'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4305