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Rural - urban migration of family labor: A portfolio model


  • Mahmudul Anam
  • Shin-Hwan Chiang


In this paper we develop a family-based rural to urban migration model and offer an alternative explanation of urban underemployment to the well-known Harris-Todaro (H-T) model. We assume that the risk-averse family allocated its members to the rural, urban formal and urban informal sectors so as to maximize the expected family utility. Rural and urban informal sector incomes are assumed to be stochastic and potentially correlated creating an incentive for families to place members in the urban informal sector to reduce the variance of aggregate income. The spatial allocation or migration problem thus coincides with the portfolio choice model in finance. A major finding of the paper is that conventional policy wisdom, derived from the individualistic, expected-income maximizing H-T model no longer holds true in the family-based 'portfolio' migration model.

Suggested Citation

  • Mahmudul Anam & Shin-Hwan Chiang, 2007. "Rural - urban migration of family labor: A portfolio model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 16(3), pages 325-335.
  • Handle: RePEc:taf:jitecd:v:16:y:2007:i:3:p:325-335 DOI: 10.1080/09638190701526477

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    References listed on IDEAS

    1. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    2. Svetlana Demidova, 2008. "Productivity Improvements And Falling Trade Costs: Boon Or Bane?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1437-1462, November.
    3. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    4. repec:rus:hseeco:122439 is not listed on IDEAS
    5. Venables, Anthony J, 1987. "Trade and Trade Policy with Differentiated Products: A Chamberlinian-Ricardian Model," Economic Journal, Royal Economic Society, vol. 97(387), pages 700-717, September.
    6. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
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    Cited by:

    1. Mahmudul Anam & Shin-Hwan Chiang & Lieng Hua, 2008. "Uncertainty and International Migration: An Option Cum Portfolio Model," Journal of Labor Research, Springer, vol. 29(3), pages 236-250, September.
    2. Zhou, Yexin & Chen, Mo & Ye, Jingyi, 2014. "Self-employment Choices of Rural Migrants in China: Distance and Social Network," Stockholm School of Economics Asia Working Paper Series 2014-31, Stockholm School of Economics, Stockholm China Economic Research Institute.


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