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How Borrowing Constraints Hinder Migration: Theoretical Insights from a Random Utility Maximization Model *
Author(s) -
Marchal Léa,
Naiditch Claire
Publication year - 2020
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12355
Subject(s) - utility maximization , economics , maximization , estimation , econometrics , destinations , microeconomics , mathematical economics , geography , management , tourism , archaeology
We provide a theoretical framework to analyze how financial constraints hinder migration. Introducing wealth heterogeneity and borrowing constraints into a random utility maximization model of migration, we find evidence of multilateral resistance to migration stemming from borrowing constraints. We calibrate the model on 22 European countries, and we 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 United Kingdom. We find that omitting the constraints biases downward the change entailed by the cost increase in the bilateral rates of migration to all destinations.