Essays of Economic Development and Migration

This dissertation is composed of three chapters and studies issues related to economic development and migration. The first chapter looks at migration choice in an environment where people face risk and liquidity constraints. The second chapter, which is co-authored with Jeremy Magruder, studies the labor market impact of immigration in Indonesia. The third chapter is written together with Joan Hamory Hick and Edward Miguel and examines selection into migration in Kenya./nThe first paper develops and tests a migration choice model that incorporates two prominent migration strategies used by households facing risk and liquidity constraints. On the one hand, migration can be used as an ex-post risk-coping strategy after sudden negative income shocks. On the other hand, migration can be seen an as investment, but liquidity constraints may prevent households from paying up-front migration costs, in which case positive income shocks may increase migration. These diverging migratory responses to shocks are modeled within a dynamic migration choice framework that I test using a 20-year panel of internal migration decisions by 38,914 individuals in Indonesia. I document evidence that migration increases after contemporaneous negative income shocks as well as after an accumulation of preceding positive shocks. Consistent with the model, I find that migration after negative shocks is more often characterized by temporary moves to rural destinations and is more likely to be used by those with low levels of wealth, while investment migration is more likely to involve urban destinations, occur over longer distances, and be longer in duration. Structural estimation of the model reveals that migration costs are higher for those with lower levels of wealth and education, and suggests that the two migration strategies act as substitutes, meaning that those who migrate to cope with a negative shock are less likely to invest in migration. I use the structural estimates to simulate policy experiments of providing credit and subsidizing migration, and I explore the impact of increased weather shock intensity in order to better understand the possible impact of climate change on migration./nThe second paper studies the labor market impact of internal migration in Indonesia by instrumenting migrant flows with rainfall shocks at the origin area. Estimates reveal that a one percentage point increase in the share of migrants decreases income by 1.22 percent and reduces employment by 0.26 percentage points. These effects are different across sectors: employment reductions are concentrated in the formal sector, while income reduction occurs in the informal sector. Negative consequences are most pronounced for low-skilled natives, even though migrants are systematically highly skilled. We suggest that the two-sector nature of the labor market may explain this pattern./nThe third paper exploits a new longitudinal dataset to examine selective migration among 1,500 Kenyan youth originally living in rural areas. More than one-third of individuals report moving to an urban area during the study period. Understanding how this migration differs for people with different ability levels is important for correctly estimating urban-rural wage gaps, and for characterizing the process of “structural transformation” out of agriculture. We examine whether migration rates are related to individual “ability”, broadly defined to include cognitive aptitude as well as health, and then use these estimates to determine how much of the urban-rural wage gap in Kenya is due to selection versus actual productivity differences. Whereas previous empirical work has focused on schooling attainment as a proxy for cognitive ability, we employ an arguably preferable measure, a pre-migration primary school academic test score. Pre-migration randomized assignment to a deworming treatment program provides variation in health status. We find a positive relationship between both measures of human capital (cognitive ability and deworming) and subsequent migration, though only the former is robust at standard statistical significance levels. Specifically, an increase of two standard deviations in academic test score increases the likelihood of rural-urban migration by 17%. Results are robust to conditioning on household demographic and socioeconomic measures that might capture some aspect of credit constraints or household bargaining. In an interesting contrast with the existing literature, schooling attainment is not significantly associated with urban migration once cognitive ability is accounted for. In contrast, academic test score performance is not correlated with international migration to neighboring Uganda. Accounting for migration selection due to both cognitive ability and schooling attainment does not explain more than a small fraction of the sizeable urban-rural wage gap in Kenya, suggesting that productivity differences across sectors remain large.

Advisor: Magruder, Jeremy