Migration networks and microenterprises in Mexico

Are migration networks associated with lower capital costs, or the alleviation of capital constraints? We examine these questions with data measuring access to remittance flows among small-scale entrepreneurs in Mexico. Using a survey of more than 6000 self-employed workers and small firm owners located in 44 urban areas of Mexico, we estimate the impact of attachment to migration networks on the level of capital investment, the capital-output ratio, sales, and profits of microenterprises. The impact is identified from the geographic pattern of migration from Mexico driven by the completion of rail lines in the early 1900s. For the full sample of firms, we find that migration is associated with higher investment levels and higher profits, but not higher sales. The strongest effects on investment are in the categories of automobiles, tools and inventories. When the sample is limited to firms in high-capital sectors, investment, sales, and profits all increase with attachment to the migration networks, suggesting that attachment to the migration network alleviates capital constraints in those sectors.