Temporary migration for long-term investment

Abstract

New survey data from Bangladesh provide direct evidence that temporary migration is an effective strategy for workers to accumulate capital and finance self-employment activities back home. We estimate a dynamic model of temporary migration and entrepreneurial investment under constraints, which we use for policy analysis. Lowering of migration costs increases emigration, reduces the age at which workers depart and the duration of their time abroad, which together lead to higher savings and domestic self-employment. Cutting the cost of migration by one half boosts business creation by 8%. Reducing the interest rate for entrepreneurial loans lowers migration and savings repatriation, undercutting the positive effects on business creation at home. This highlights the need to investigate migration and investment jointly, since policies targeting either choice may be enhanced or undercut by endogenous responses in the other.