Does foreign aid volatility increase international migration?

Abstract

Scholars have long debated the relationship between foreign aid and international migration, with some arguing that foreign aid can deter emigrants and others contending that aid enables them. We contribute to this discussion by exploring whether negative aid shocks affect migration patterns. We theorize that these shocks, which occur when there are large and abrupt decreases in aid disbursement to a given country, lead individuals in aid-recipient countries to emigrate. Such shocks lead to reductions in the provision of public and community services that are funded by aid. These reductions in turn force individuals who depend on these services to seek better lives abroad. We expect this effect to be especially evident among low-skilled individuals, who are most reliant on the services that are supported by foreign aid. We use country-level panel data to test hypotheses derived from these arguments and we find, first, that negative aid shocks are accompanied by heightened emigration rates and, second, that this effect is driven by the emigration of relatively unskilled individuals.