of businesses in developing countries, and we show that migration is an important path to circumvent poorly functioning markets for investment loans. Several studies in the international migration literature have established that self-employment rates are particularly high among former migrants who have returned home. For example, McCormick and Wahba (2001), Wahba and Zenou (2012) and Mah ́e (2019) provide evidence from Egypt. Dustmann and Kirchkamp (2002) focus on migrants who returned from Germany to Turkey, and Br ̈uck et al. (2018) explore return migration to the Kyrgyz Republic. Several other papers aim to isolate the causal relationships between migration and financial investments. These include Mesnard (2004) for Tunisia; Yang (2006), Yang (2008), and G. Khanna et al. (2020) for the Philippines; C. Woodruff and Zenteno (2007) for Mexico; and Batista et al. (2017) for Mozambique; see also Wahba (2014), Rapoport and Docquier (2006) and Naud ́e et al. (2017) for related surveys.<sup>2</sup> Rapoport (2002) and Djaji ́c (2010) construct analytical models that investigate the relationship between migration and self-employment under credit constraints.

Our paper goes beyond this literature in that it provides direct evidence on remittances and repatriated savings being the primary source of financing for newly set up businesses by returning migrants. Moreover, we give, for the first time, a detailed account of the financial costs and returns to temporary migration as a risky investment.

Why is self-employment, then, such an attractive option for low-skilled workers? Even though it has been argued that self-employment is a last resort for many workers in some contexts, evidence from Bangladesh indicates that the vast majority of the self-employed choose this option voluntarily (Gutierrez et al. 2019). While informal wage employment tends to be easily available for low-skilled workers, self-employment often generates higher income. Furthermore, wages of low-skilled workers start to decline at around age 45 since these jobs tend to be in physically demanding sectors (such as construction and agriculture) that become harder to fully perform for older workers. In contrast, most self-employed are able to maintain steady incomes until they retire.<sup>3</sup> Ability to borrow for migration, but not for self-employment, is an important part of the puzzle in this context. Two factors can explain this observation. First, it is significantly less risky for lenders to finance migration expenses than to finance a startup. Workers going to the Persian Gulf or Southeast Asian countries need to have valid contracts that specify a wage and initial duration for their employment. Although workers face some uncertainty regarding the monetary wage actually paid (as opposed to benefits in-kind that may be subtracted) and

> 2A separate literature examines entrepreneurship among _immigrants_ , see for instance Kulchina (2016), Hernandez and Kulchina (2020), Kulchina and Oxley (2020), and Agarwal et al. (2021), and the surveys by Fairlie and Lofstrom (2015), and S. P. Kerr and W. R. Kerr (2017).

> 3Self-employment options in our context primarily consist of relatively simple occupations such as owning a small store, driving a taxi, or running a small business.

4