Heterogeneous effects of emigration on labor market activity and investment decisions in Punjab, Pakistan

We investigate the impacts of emigration on the labor market and investment decisions of migrant-sending households in Pakistan by constructing a large individual-level dataset, using several rounds of the Multiple Indicator Cluster Survey conducted between 2003 and 2014. We add to the literature by introducing a new time-varying instrumental variable to control for endogenous migration decisions, constructed as a composite of three variables that represent opportunities to work abroad: (i) the household’s number of adult males, (ii) historic diaspora rates, and (iii) deviations of nighttime light intensity from its trend in migrant-receiving countries. We find a significant shift in domestic labor market activity from lower-status employment categories (not working at all, unpaid family work and manual labor) toward higher-status activities and entrepreneurship such as self-employment and becoming an employer within migrant-sending households. We also find higher investment in property, bank deposits, agricultural land, livestock, poultry and fisheries by individuals in migrant-sending households. The results are stronger for vulnerable groups, implying that migration can be a force for good for rural development, the welfare of women, and less-educated individuals.