The Return Motivations of Legal Permanent Migrants: Evidence from Exchange Rate Shocks and Immigrants in Australia

Working Paper 50
Publisher: Washington, DC: Mathematica Policy Research
Jan 12, 2017
Authors
Paolo Abarcar

Key Findings:

  • A 10 percent depreciation of home country currency leads to a 0.37 percentage point reduction in the probability that a migrant will return to her home country. This result consistent with the story that migrants return not because they are target-earners, but because of life-cycle considerations.
  • The effect is strongest for migrants who have predetermined that they want to return, weak for those initially undecided, and null for those who originally stated their desire to stay. Migrants seek to optimally time their return, rather than to decide whether to return, on the basis of favorable home country conditions.
  • Evidence suggests that return is a function more of purchasing power and consumption rather than employment possibilities in the home country. 
Why do legal permanent migrants return to their home countries? How do home country conditions influence such a decision? This paper uses exogenous exchange rate shocks arising from the 1997 Asian financial crisis to distinguish between the motivations of Australian immigrants to return to their home country. A 10 percent favorable shock (a depreciation in home country currency) leads to a 10 percent reduced likelihood of return in a two-year period. The effect is stronger for those with pre-existing intentions to return, weaker for those undecided, and zero for those who initially desired to stay. These results favor a life-cycle explanation for migrant behavior and reject the theory that migrants are target earners who seek to invest upon return home.