Research Article

Foreign Aid, Illegal Immigration, and Host Country Welfare

Published: 2014-5

Journal: Review of Development Economics

DOI: 10.1111/rode.12090

Abstract

This paper analyzes the effect of foreign aid on illegal immigration and host country welfare using a general equilibrium model. It shows that foreign aid may worsen the recipient nation's terms of trade. Furthermore, it may also raise illegal immigration, if the terms of trade effect on immigration flows dominates the other effects identified in our analysis. Empirical analysis of the effect of foreign aid on illegal immigration to theUSAbroadly supports the predictions of our theoretical model. Foreign aid worsens the recipient's terms of trade. While the terms of trade effect tends to reduce illegal immigration, countervailing effects are found to dominate. The paper contributes to the related literature by establishing that there are unintended consequences of foreign aid and, while some of them are reminiscent of the classical transfer problem, others are new and arise as a result of endogenous illegal immigration flows.

Faculty Members

  • Dustin Chambers - Department of Economics and Finance Salisbury University 1101 Camden Ave. Salisbury MD 21801 USA
  • Subhayu Bandyopadhyay - Research Division Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166 USA
  • Jonathan Munemo - Department of Economics and Finance Salisbury University 1101 Camden Ave. Salisbury MD 21801 USA

Themes

  • Endogenous illegal immigration flows
  • Impact of foreign aid on illegal immigration
  • Classical transfer problem
  • Welfare of host countries
  • Unintended consequences of foreign aid
  • Terms of trade

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