Memorandum, Department of Economics, University of Oslo 18/2013
We study the political economy of migration policies in oil-rich Gulf countries focusing on two policy dimensions: a) the number of migrants allowed into the country and b) the assimilation of migrants, where less assimilated migrants on short-term contracts remit more. We develop a two goods macro model with traded and non-traded goods. The migration of guest workers leads to a wage drop hurting citizen workers, while capitalists and oil rent earners benefit. When foreign exchange is remitted out of the economy, the real exchange rate depreciates. The remittance outflow benefits oil rent earners while capitalists and workers lose. Hence the three classes of domestic agents have diverging interests with regard to their preferred policy mix. The results are important for understanding the changes in migration policy in the Gulf, in particular in relation to the sharing of oil rents and on the political influence of the working class and the capitalists.