Economic
Abstract
This article investigates how negative income shocks in migrant destination countries affect the domestic and international labor migration decisions of family members left behind. Using variation in labor market conditions during the Great Recession, the study finds large and heterogeneous effects.
Poor migrant households respond to adverse shocks by reducing domestic migration and increasing international migration, while rich households remain largely unaffected. A theoretical framework explains this heterogeneity through the interaction of income effects (which push households to send more migrants) and substitution effects (which reduce the attractiveness of foreign migration).
The results also show a deterioration in the average skill level of international migrants, as new migrants disproportionately come from poorer households with lower education levels. Migration decisions are strongly influenced by kinship networks, as new migrants tend to choose the same destinations as earlier migrants from their families. Additionally, these migration changes lead to demographic shifts, including increased cohabitation and fertility among poorer households.
Introduction
Migration has expanded rapidly in recent decades, both within and across countries, becoming a key component of global economic integration. For developing countries, international labor migration generates significant income gains and remittances, which serve as a crucial financial resource for households left behind.
However, this dependence also exposes households to external economic shocks. When labor market conditions deteriorate abroad, migrant incomes and remittances decline, forcing households to adjust their strategies. This raises several important questions: Do migrants return home, or do households send additional members abroad? How are domestic and international migration decisions related? And how do these responses vary across households?
Using a unique panel dataset of migrant households in Vietnam, this study provides causal evidence by exploiting exogenous variation in labor market shocks during the global crisis. The findings indicate that:
- Poor households increase international migration (by about 0.17 individuals per household) while decreasing domestic migration
- Rich households show little to no response
- New international migrants are predominantly female and often target destinations such as the United States
These results highlight a substitution effect between domestic and international migration, particularly among poorer households.
Theoretical Insight
The study is grounded in a household-level migration model where decisions are influenced by two opposing forces:
- Substitution effect: Lower returns to foreign migration reduce its attractiveness
- Income effect: Reduced household income increases the need to seek earnings abroad
For poor households, the income effect dominates, leading to increased international migration. For rich households, the two effects offset each other, resulting in minimal behavioral change.
Key Contributions
This paper contributes to three main strands of literature:
- Migration and household outcomes
It is among the first to show that domestic and international migration are interdependent and jointly shape household welfare. - Determinants of migration
The findings challenge the conventional view that higher returns always increase migration, showing instead that migration may rise even when returns fall. - Selection into migration
While within-household skill selection remains stable, aggregate migration quality declines because new migrants come disproportionately from poorer, less-educated households.
Additionally, the study documents important demographic consequences, including increased fertility and changes in household composition.
Conclusion
Economic shocks in destination countries transmit across borders through remittances, significantly influencing migration decisions and household dynamics at origin. The response varies sharply by income level, with poorer households adopting more aggressive migration strategies.
The findings emphasize the need to analyze domestic and international migration jointly, as well as the role of family networks and economic constraints in shaping migration patterns.