Migration and Remittances: A New Approach with Endogenous Exchange Rates and the Possibility of Multiple Equilibria

This paper argues that people may voluntarily choose migration to accept wages lower than those in one's own country without being triggered by misperception. It states that:

• A migrant would have an incentive to tolerate extremely low real wages in the host country, if the remittances sent back home translate into amounts of consumption favorable enough to compensate;
• When remittances serve as the channel through which consumption is allocated between a migrant and her family, prevailing exchange rate shifts around the worker's utility gain from migration;
• The number of migrants and the amount of hard currencies they send home could affect exchange rates.

The paper:

• Incorporates this two-way interaction to endogenously determine the exchange rates with the number of migrants;
• Focuses on concurrent remittances made to family as the main motivation to migrate rather than inter-temporal optimization of individual utility;
• Contributes to understanding migration in relation with important macro economic variables;
• Demonstrates the possibility of multiple equilibria to suggest an unusual route through which migration can be regulated.

The paper concludes with the following policy implications:

• Policies motivated by philanthropic ideas, without an analysis of the actual circumstances, may bring about unintended and unwanted results;
• The government would have to improve its fiscal stance to reduce migration.