Remittances as pure or precautionary investment? Risk, savings and return migration

This paper provides a theory of migrants’ decisions to remit and save under uncertainty in connection with future location decisions. We show that the impact of remittances on the risk faced by the migrant is more complex than usually acknowledged. On the one hand, their effect on aggregate risk is non-monotonic. On the other hand, their impact on the geographical location of risk might be counter-intuitive, as remittances increase the migrant’s exposure to risk in the origin country. Also, marginal returns to remittances may be increasing, at least locally, due to the endogeneity of the future location. Interior solutions are therefore not guaranteed, and liquidity constraints faced by migrants may be binding. Finally, undocumented migrants are shown to be more likely to remit than legal migrants.