# **1 Introduction**

International labor migration has surged in recent years with an increasing number of workers moving across international borders for work. The stock of international migrants increased from 154 million in 1990 to 244 million in 2015 (UNDESA, 2015). Over 70 percent of international migrants are from developing countries. However, most of the migrants from developing countries migrate to other developing countries, though the returns to migration may be higher in the developed countries. Of the migrants that originate in the least developed countries, only 16 percent migrate to the global North. High costs of migration to and low demand for migrant workers in the developed countries potentially prevent migrants from migrating there.

In this paper, I investigate the migration response to the ‘push’ and ‘pull’ shocks, shocks that affect the origin and destination respectively, when destinations have varying costs of migration and individuals are liquidity constrained. For instance, a positive income shock in the origin may increase migration by making it more affordable or it may reduce migration by making it less desirable. The net effect on migration rates depends upon the distribution of households around the affordability and desirability margins. I outline a simple theoretical framework that captures these features and test its implications in the context of international migration from Nepal.

Several features make Nepal a good setting to study the effect of shocks on international migration. First, migration of workers from Nepal is large and crucial to the national economy. Though the historic migration rates are similar to the global average, by 2011 the migrant to population ratio increased to 7.4 percent, more than double the global average (Table 1). Consequently, foreign remittances became one of the largest sources of national income, contributing over a fifth to the national GDP<sup>1</sup> . Second, most work migrants from Nepal choose between two distinct types of destinations that differ in terms of the costs and returns to migration. As seen in Table 1, India has been one of the key destinations for Nepali workers for the past several decades and continues to be the largest destination country. It serves as the low cost and low return destination for Nepali workers. However, the surge in migration in the 2000s was driven by migration to Malaysia and the Persian Gulf countries (especially Qatar, Saudi Arabia and the United Arab Emirates). Most of the migrants, about 90 percent of those who migrate for work, migrate to these destinations. These countries are the high-cost-high-return destinations for Nepali workers. Third, migration to these destination countries is facilitated institutionally. Nepal maintains an open border with India and workers can move across the border with extreme ease. In addition, agreements with Malaysia and the Persian Gulf countries make it relatively easy, though costly, for Nepali workers to migrate for (low-skilled) work in those destinations. Almost 500,000 workers left Nepal in 2014 to work in these destination countries.

However, the destinations chosen by Nepali workers are not unique to migrants from Nepal. Nine Persian Gulf countries, which represent 1 percent of the global population, are destinations to 13 percent of the international migrants in the world (UNDESA, 2015)<sup>2</sup> . Along with India and Malaysia, these destinations account for over 16 percent of international migrants (21 percent of male migrants) in the world. These countries have become the workplace of low-skilled workers from the Philippines and South Asian countries who have been migrating to these countries for

> 1In 2015, this share was 32 percent (The World Bank) making Nepal the country with the largest share of personal remittance to the GDP

> 2The nine countries are Bahrain, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. These are the largest destinations for international migrants in the Persian Gulf excluding the Syrian Arab Republic.

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