Productivity differences and inter-state migration in the U.S.: A multilateral gravity approach

In this paper, we study the quantitative role of productivity differences in explaining migration in presence of multiple destination choices. We construct a dynamic general equilibrium model with multi-region, multi-sector set-up where labor is a mobile input, which adjusts to regional and sectoral productivity shocks, resulting in migration across regions. The proposed model generates a migration network where the flow of migrants between any two regions follows a gravity equation. We calibrate the model to the U.S. data and we find that variation in industrial and regional total factor productivity shocks explains about 63% of the interstate migration in the U.S. Finally, we perform comparative statics to estimate the effects of long-run structural changes on migration. We find that capital intensity of the production process and the demand for services over manufactured goods negatively impact aggregate level of migration whereas asymmetries in trade patterns do not appear to have substantial effects.