_Brazilian spatial labor dynamics Page 10_ local multiplier effects of such transfers. However, the variable declined in magnitude and significance at higher cutoffs. Finally a rough proxy for quality of municipal governance – an indicator of whether the municipal financial accounts had been computerized by 1999 -- had a modest effect under 2SLS, but not under the GMM specifications.

We turn now to the countrywide labor supply equation. Here all four specifications show strong agreement on the coefficients and significance of number of variables, although standard errors increase with the cutoff levels. First we consider wage variables. Labor supply has an elasticity of about 0.18 with respect to the 1991 wage level, so that higher initial wages are associated with a mildly faster rate of employment growth. Although we expected the change in ln market potential to have a negative coefficient, it was robustly determined at about 0.23. This suggests that location in a booming region has spillovers on labor supply as well as demand.

Consider next the impact of initial demographic and agroclimatic conditions. The 1991 ratio of workforce entrants to working age population was also robust and highly significant, as expected. Perhaps most striking, all the specifications found a very strong negative association between the proportion of employment in farming in 1991, and subsequent employment growth. This strongly suggests an exodus from farming regions. Lower temperature and higher precipitation are associated with faster employment growth. The first and third principal components of rainfall<sup>8</sup> , which capture variation in annual seasonality of rainfall, are also significant though difficult to interpret directly. Very small MCAs showed more rapid growth than very large ones, all else equal.

Two demographic variables showed robust effects contrary to our expectations. We had expected the initial labor force participation rate to be negatively correlated with subsequent employment growth, on the argument that places which had already experienced growth in female labor force participation would have less scope for further employment expansion. But in fact labor force participation was strongly positively associated with employment growth. We expected also that places with high native proportion of population (i.e. born in the município of current residence) represented areas that had barriers to outmigration or were unattractive to in-migration, and hence predicted lower employment growth rates. However, the coefficient on this variable was positive, significant and robust.

Finally, the regression includes a few variables intended to capture the impact of local amenities on attracting and retaining labor. Initial homicides per capita had a negative effect on employment growth, though the significance of this coefficient declined with higher cutoffs. A one standard deviation increase in homicides corresponded roughly to a 4% decrease in employment growth over the nine year period. The initial level of teacher qualifications had a negative effect on employment growth, contrary to expectations, but the effect was of negligible magnitude.

The demand-side results for the nonmetropolitan sample (table 5) are quite similar to those for the nationwide sample, despite the huge disparity in MCA size. The coefficients on education and rainfall are of about the same magnitude as before. The labor elasticity coefficient is about -0.74 and significant in all the GMM specifications, slightly more negative than the 2SLS specification. The coefficient of the change in market potential is also relatively consistent across the GMM specifications, with an

> 8 Calculated from the vector of the 12 monthly averages of precipitation.  The second principal component is nearly collinear with total precipitation.