Increasing political returns and rural-urban migrations

This paper analyzes the different equilibria in rural-urban migrations and political redistribution that result from the interaction between increasing political returns, the distribution of land, and credit market imperfections. Governments that put a special weight on the welfare of urban workers when setting agricultural prices generate a political externality in the urban sector, giving peasants an incentive to migrate in anticipation of policy determination. If credit markets are imperfect, land ownership confers higher productivity to peasants, who require large price changes to migrate. In this context, land inequality would lead to large migrations and to large policy change, while an egalitarian land distribution would lead to no migration and to a small policy change. This interaction sheds light on the contrasting experience of Latin America and East Asia at the outset of World War II.