Inequality, the Urban-Rural Gap, and Migration

Using population and product consumption data from the Demographic and Health Surveys, I construct comparable measures of inequality and migration for 65 countries, including some of the poorest countries in the world. I find that the urban-rural gap accounts for 40% of mean country inequality and much of its cross-country variation. One out of every four or five individuals raised in rural areas moves to urban areas as a young adult, where they earn much higher incomes than nonmigrant rural permanent residents. Equally, one out of every four or five individuals raised in urban areas moves to rural areas as a young adult, where they earn much lower incomes than their nonmigrant urban cousins. These flows and relative incomes are suggestive of a world where the population sorts itself geographically on the basis of its human capital and skill. I show that a simple model of this sort explains the urban-rural gap in living standards. JEL Codes: O15, O18. Copyright 2013, Oxford University Press.