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The Welfare Effects of Encouraging Rural-Urban Migration

Staff Report 635 | Published January 4, 2022

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Authors

David Lagakos Boston University and NBER
Michael E. Waugh Monetary Advisor
Mushfiq Mobarak Yale University and NBER
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.