Internal Migration, Structural Change, and Economic Growth

Migration of labor out of rural areas and agriculture is a prevalent feature of economic development, growth and structural transformation. Essentially, this process involves the transformation of a rural-agrarian economy to an industrial-service based economy, as labor migrates from agriculture, capital deepening occurs and labor saving technologies are introduced. Not recognized in previous models of this process is the householdsíchoice, inter-temporally, of urban - rural residency which not only alters the demand for regionally speciÖc goods (e.g., housing, education, health), and hence the cost of living, but also the stock of rural ñ urban labor which a§ects the competition for resources within and between the urban ñrural economies, and hence the rate of growth and structural change. This is the main contribution of this paper. We investigate the relationship between GDP growth, regional imbalances, and ongoing rural-urban migration over time using a neoclassical multi-region-sector growth model. The household decision for migration is dependent on the cost-of living di§erentials implied by the relative changes in regional home goods prices across regions as capital deepening occurs and the capital stock within each region evolves. Results show that allowing for residency choice provides a much deeper explanation of the forces of structural transformation and growth.