Working Paper Series Cash Transfers and Migration: Theory and Evidence from a Randomized Controlled Trial Jules Gazeaud Nova School of Business and Economics and NOVAFRICA Eric Mvukiyehe The World Bank Olivier Sterck University of Oxford ISSN 2183-0843 Working Paper No 2004 June 2020 NOVAFRICA Working Paper Series Any opinions expressed here are those of the author(s) and not those of NOVAFRICA. Research published in this series may include views on policy, but the center itself takes no institutional policy positions. NOVAFRICA is a knowledge center created by the Nova School of Business and Economics of the Nova University of Lisbon. Its mission is to produce distinctive expertise on business and economic development in Africa. A particular focus is on Portuguese-speaking Africa, i.e., Angola, Cape Verde, Guinea-Bissau, Mozambique, and Sao Tome and Principe. The Center aims to produce knowledge and disseminate it through research projects, publications, policy advice, seminars, conferences and other events. NOVAFRICA Working Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. NOVAFRICA | Nova School of Business and Economics - Faculdade de Economia da Universidade Nova de Lisboa Campus de Carcavelos | Rua da Holanda, Nº 1, 2775-405 Carcavelos – Portugal | T: (+351) 213 801 673 | www.novafrica.org Cash Transfers and Migration: Theory and Evidence from a Randomized Controlled Trial* Jules Gazeaud † Eric Mvukiyehe ‡ Olivier Sterck § June 2020 Abstract Will the fast expansion of cash-based programming in developing countries increase international migration? Theoretically, cash transfers may foster interna- tional migration by relaxing liquidity, credit, and risk constraints. But transfers, especially those conditional upon staying at home, may also increase the opportu- nity cost of migrating abroad. This paper evaluates the impact of a cash-for-work program on migration. Randomly selected households in Comoros were offered up to US$320 in cash in exchange for their participation in public works projects. We find that the program increased international migration by 38 percent, from 7.8 percent to 10.8 percent. The increase in migration appears to be driven by the al- leviation of liquidity and risk constraints, and by the fact that the program did not increase the opportunity cost of migration for likely migrants. JEL Classification: J61, O12, O15, F22 Keywords: Migration, Cash Transfers, Financial Constraints, Risk-aversion *We thank Samik Adhikari, Cátia Batista, Simone Bertoli, Michael Clemens, Federica Esu, Jeremy Foltz, Douglas Gollin, Flore Gubert, John Loeser, David McKenzie, Ricardo Mora, Elisabeth Sadoulet, and participants at numerous seminars and conferences for helpful comments and suggestions; Emile Bourdonnais, Quentin Roy, and Olivier Santoni for excellent research assistance. Computational re- producibility verified by DIME Analytics. Please see details of the reproducibility check in the online appendix. This work has been made possible through grants from i2i – an umbrella facility fund sup- ported by the World Bank and DFID with the objective of expanding the use of IE across the developing world, particularly in areas that have traditionally been under-evaluated – and the Jobs Umbrella Trust Fund, which is supported by DFID and the Governments of Norway, Germany, Austria, the Austrian Development Agency, and the Swedish International Development Cooperation Agency. †NOVAFRICA, Universidade Nova de Lisboa. E-mail: [email protected] ‡DIME, The World Bank. E-mail: [email protected] §ODID, University of Oxford. E-mail: [email protected] 1 1 Introduction International migration is a defining issue of our time.1 The number of international migrants worldwide has grown by 57% between 2000 and 2019, from 173 million to 272 million (United Nations, 2019). More than 750 million people aspire to migrate to another country if they had the opportunity (Esipova et al., 2018). Against this back- ground, an intense debate is raging between those portraying migrants as a threat and those arguing that the current migration policies are inhumane, unfair, or ineffi- cient (Clemens, 2011; Baele and Sterck, 2015; Keen and Andersson, 2018). These trends are profoundly reshaping the migration and development policies of Western coun- tries and contributing to the rise of populism in Europe and in the US (Halla et al., 2017; Mayda et al., 2018; Dustmann et al., 2018). In the wake of the “migration crises” in Europe and in the Americas, aid budgets were redirected towards addressing the root causes of irregular migration (Clemens and Postel, 2018) and supporting job cre- ation in origin countries (Giambra and Mckenzie, 2019).2 While the Covid-19 crisis has markedly reduced migration flows, the phenomenon has not stopped and migration flows could well rebound after the crisis given the dramatic socio-economic conse- quences of the pandemic (Decerf et al., 2020). Another transformation is concurrently reshaping development and humanitarian assistance. In view of the mounting evidence of the positive and wide-ranging ef- fects of conditional and unconditional cash transfers (Arnold et al., 2011; Bastagli et al., 2016), cash-based programming3 is rapidly becoming the benchmark modality of so- cial assistance. In 2015, as many as 130 low- and middle-income countries had at least one non-contributory unconditional cash transfer (UCT) program and 63 coun- tries that had at least one conditional cash transfer program, up from two countries in 1997 (Honorati et al., 2015). Embodying this paradigm shift, the World’s major human- itarian donors and aid organizations endorsed the Grand Bargain at the World Human- itarian Summit in May 2016, which calls for increased use of cash-based programming to “deliver greater choice and empowerment to affected people and strengthen local markets”. The Covid-19 pandemic has accelerated this trend; as of May 22 2020, 161 new cash- 1The International Organization for Migration (IOM) - a UN agency - defines a migrant as any per- son who is moving or has moved across an international border or within a State away from his/her habitual place of residence, regardless of (1) the person’s legal status; (2) whether the movement is vol- untary or involuntary; (3) what the causes for the movement are; or (4) what the length of the stay is. 2For example, in 2015, the European Commission launched the €4.6 billion EU Emergency Trust Fund for Africa to address the root causes of irregular migration and displacement in Africa, includ- ing through supporting job creation and self -employment opportunities. Similarly, since 2016, the US government has been transferring about US$700m yearly to support the Alliance for Prosperity Plan, a plan designed by El Salvador, Guatemala and Honduras to deter irregular migration and create the development conditions necessary to root their populations. 3Cash-based programming includes all programs of conditional and unconditional transfers of cash or vouchers, including cash-for-work programs. 2 transfer programs had been introduced in 104 countries in response to the pandemic (Gentilini et al., 2020). Do cash transfers foster or deter international migration? Understanding how pos- itive income shocks affect international migration is critical, not only for academics working on related topics, but also for policy-makers who have preferences over mi- gration outcomes. Theoretically, the effect of cash transfers on migration is ambiguous. On the one hand, transfers may foster international migration by relaxing liquidity, credit, and risk constraints. On the other hand, transfers, if conditional on staying at home, may increase the opportunity cost of migrating abroad. Experimental evidence is limited to the effect of Mexico’s Progresa program on migration to the US and is some- what conflicting. While Stecklov et al. (2005) find that the program reduced overall mi- gration to the US, Angelucci (2015) suggests that the program increased labor-induced migration to the US by relieving the credit constraints of eligible households. Evidence from low-income countries and evidence on the mechanisms at play are sorely lacking. The present study addresses the need for more robust evidence on the effects of cash transfers on international migration. We study the impact on international migration of a randomized cash-for-work in- tervention targeted at very poor households in Comoros. The cash-for-work program is conceptually equivalent to a cash transfer program that is conditional upon partici- pating in public works. Theoretically, we identify four main channels through which such cash transfer intervention could affect migration. First, cash transfers relax the budget constraint and can therefore facilitate the migration of households facing a liq- uidity constraint (liquidity channel). Second, cash transfers that are conditional on re- maining in the origin country (e.g. to participate in public works) increase the opportu- nity cost of migrating and can therefore reduce migration (opportunity-cost channel). Third, the prospect of future cash transfers can be used as a collateral by households in order to facilitate access to credit and thereby finance migration upon their selection into the cash-transfer program (collateral channel). Finally, as migration is a risky in- vestment, cash transfers can encourage