Institutional Voids, Capital Markets and Temporary Migration : Evidence from Bangladesh

Limited access to credit due to poorly functioning institutions is a key constraint tobusiness creation. This paper examines the role played by temporary migration in addressing the institutional void oflimited access to loans by aspiring entrepreneurs. Using rich data from one of the major migrant-sending countriesglobally, Bangladesh, it provides evidence on how migration is employed as a common intermediate step to accumulate thecapital required for entrepreneurship. The paper offers, for the first time, a detailed account of the financial costsand returns to temporary migration as a risky investment. It shows that international migration shares many commonfeatures with classical entrepreneurial investments: it requires the payment of a considerable upfront cost,generates high returns, and is risky. The paper shows that temporary migrants usually get high returns from theirmigration episode and are often successful in starting entrepreneurial activities back home, thanks to fasteraccumulation of savings overseas. Given the similarities shared by Bangladesh and other major migrant-sendingcountries globally, the key findings of the paper are relevant beyond the Bangladeshi context studied by this paper.