Wealth constraints, migrant selection and inequality in developing countries

Abstract

Migration and remittances may increase the wealth of an economy but can also increase economic inequality. This paper builds a theoretical framework that relates migration and education decisions to liquidity constraints in migrants’ home countries. The evolution of technology together with migration costs determines the effects of migration on education, income and wealth inequality in labor-exporting developing countries. The model predicts that in the first stages of technological development migration rates increase and migration enlarges economic inequality over time for high migration costs. At more advanced stages of development or low migration costs, migration rates and wealth inequality decline over time. The technological gap and migration costs determine the effects of migration on inequality. Wealth constraints play a crucial role in selection and inequality