To Stay or to Migrate? When Becker Meets Harris-Todaro
Allowing migration activity as an integral part of demographic transition and economic development, we establish a locational quantity-quality trade-off of children and explore its macroeconomic consequences. We construct a dynamic competitive migration equilibrium framework with rural agents heterogeneous in skills and fertility preferences. We then establish and characterize a mixed migration equilibrium where high-skilled rural agents with low fertility preferences always migrate to cities, low-skilled with high fertility preferences always stay, and only an endogenously determined fraction of high-skilled/high fertility preferences or low-skilled/low fertility preferences ends up moving. By calibrating our model to fit the data from China, we find interesting interactions between fertility and migration decisions in various counterfactual experiments with respect to changes in migration, population control and rural land entitlement policies. We conclude that overlooking the locational quantity-quality trade-off of children may lead to nonnegligible biases in assessing the implications and effectiveness of government policies.
We are grateful for comments from Douglas Almond, Carlos Garriga, Chang-Tai Hsieh, Wen-Tai Hsu, Rachel Ngai, Ray Riezman, Michael Song, as well as participants at the AEA-ASSA Annual Meetings, the Asian Meetings of the Econometric Society, the Society for Advanced Economic Theory Meeting, the Regional Science Association International Meeting, and the Taiwan Economic Research Conference and various seminars. Travel support from Academia Sinica, the Research Grant Council of Hong Kong, the Center for Dynamic Economics of Washington University, and the Ministry of Science and Technology of Taiwan are gratefully acknowledged. Needless to say, the usual disclaimer applies. Liao thanks the financial support from the Ministry of Science and Technology of Taiwan, project No. MOST 103-2410-H-001-016-MY2. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.