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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 heterogeneous 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 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 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, and greater than from policies that discourage migration, though migration subsidies lead to larger gains for the poorest households, which have the greatest propensity to migrate.

Authors: 
David Lagakos, University of California, San Diego
Mushfiq Mobarak, Yale University
Michael Waugh, NYU Stern
Publication Date: 
January, 2018
HCEO Working Groups: 
Publication Status: 
Document Number: 
2018-002
File Description: 
First version, December, 2017