The Welfare Effects of Encouraging Rural-Urban Migration

Abstract: This paper studies the welfare effects of encouraging rural-urban migration in the developing world. To do so, we build and analyze a dynamic general-equilibrium model of migration that features a rich set of migration motives. We estimate the model to replicate the results of a field experiment that subsidized seasonal migration in rural Bangladesh, leading to significant increases in migration and consumption. We show that the welfare gains from migration subsidies come from providing better insurance for vulnerable rural households rather than correcting spatial misallocation by relaxing credit constraints for those with high productivity in urban areas that are stuck in rural areas.

Keywords: Risk; Insurance; Rural-urban gaps; Field experiment; Rural-urban migration; Spatial misallocation;

JEL Classification: J61; R23; O11; O15;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 2022-01-04

Number: 635