Financial Constraints, Endogenous Educational Choices and Self-Selection of Migrants

The Roy model predicts that migrants will be disproportionately drawn from the lower half of the educational distribution of the sending country if the sending country has a higher return to schooling. However, Mexican immigrants in the U.S. tend to be disproportionately drawn from the middle of the distribution. This paper argues that financial constraints may explain why. It studies migrants' selectivity when agents that face credit constraints make joint decisions about how much to invest in education and whether to migrate. The results show that financial constraints can explain the intermediate selection of migrants observed in the data.