Does Aid Drive Migration? Evidence from a Shift-Share Instrument

Abstract

Foreign aid payments have been a key policy response by Global North countries to reduce increased migration flows from the Global South. In this article, we contribute to the literature on the relationship between aid and international migration flows and estimate the contemporaneous effect of bilateral aid payments on bilateral, international migration flows. The fundamental problem in analyzing this relationship is endogeneity, or reverse causality. To address this issue and achieve causal inference, we use a shift-share, or Bartik, instrument. Examining migration flows between 198 origin countries and 16 OECD destination countries over 36 years (1980−2015), we find a positive relationship between aid and migration. A ten-percent increase in aid payments will increase migration by roughly 2 percent. We further document non-linearity in the relationship between aid and migration and find an inverted U-shaped relationship between aid and migration flows. The findings presented here have implications for the design of bilateral and multilateral aid policies and for achieving various United Nations Sustainable Development Goals by stressing the importance of a better coordination between aid and immigration policies.