The Welfare Effects of Encouraging Rural-Urban Migration
This paper studies the welfare effects of encouraging rural-urban migration in the developing world. To do so, we build a dynamic incomplete-markets model of migration in which heterogenous agents face seasonal income fluctuations, stochastic income shocks, and disutility of migration that depends on past migration experience. We calibrate the model to replicate a field experiment that subsidized migration in rural Bangladesh, leading to significant increases in both migration rates and in consumption for induced migrants. The model’s welfare predictions for migration subsidies are driven by two main features of the model and data: first, induced migrants tend to be negatively selected on income and assets; second, the model’s non-monetary disutility of migration is substantial, which we validate using using newly collected survey data from this same experimental sample. The average welfare gains are similar in magnitude to those obtained from an unconditional cash transfer, though migration subsidies lead to larger gains for the poorest households, which have the greatest propensity to migrate.
For helpful comments we thank Matthias Doepke, Greg Kaplan, Louis Kaplow, Sam Kortum, Jeremy Magruder, Melanie Morten, Paul Niehaus, Natalia Ramondo, Chris Tonetti, Fabrizio Zilibotti and seminar participants at Barcelona, Bristol, Chicago, Edinburgh, the Einaudi Institute, Fordham, the Hong Kong School of Economics and Finance, NYU, St. Andrews, Stockholm IIES, UC Irvine, UNC, USC Marshall, Washington, Yale, Zurich, the Minnesota Macro Workshop, the STLARS conference, the MadMac Growth conference, the NBER Macroeconomics Across Time and Space Meeting, the SED and the AEA meetings. For outstanding research assistance we thank Elizabeth Carls, Menaal Ebrahim, Patrick Kiernan and Seungmin Lee, and for financial support we thank the International Growth Centre. All potential errors are our own The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Ahmed Mushfiq Mobarak
Mobarak's salary is paid by Yale University, and he has received other income from the Jameel Poverty Action Lab at MIT, Innovations for Poverty Action in New Haven and the International Growth Centre at LSE during the period that this research was conducted. None of these organizations have any material interests in the results of this research.