The Welfare Effects of Encouraging Rural - Urban Migration

This paper studies the welfare effects of encouraging rural-urban migration in the develop-
ing 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 disu-
tility 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 signif-
icant 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.