Abstract

While there is a renewed literature connecting internal migration to various issues related to structural transformation such as urban labor and housing markets, the relationship between internal migration and demographic transition is much under-studied despite its importance in the process of economic development. Our article fills this knowledge gap. By constructing a simple dynamic framework in which fertility and rural-urban migration decisions are both determined, we show that more-rapid urban productivity advancement can lead to a positive relationship between migration and fertility. Using cross-country data analysis, we support our theory, establishing that both migration and fertility rates are higher in less-developed countries than in advanced economies. Our results imply that policies that may help reduce the cost of urban living or enhance urban benefits would be useful for productive structural transformation.

Pei-Ju Liao is an associate professor at National Taiwan University. Ping Wang is a professor at Washington University in St. Louis, a research fellow at the Federal Reserve Bank of St. Louis, and a research associate at the National Bureau of Economic Research. Yin-Chi Wang is an assistant professor at National Taipei University. Chong K. Yip is a professor at the Chinese University of Hong Kong.

INTRODUCTION

Since the novel contributions by Todaro (1969) and Harris and Todaro (1970), there have been numerous studies on urbanization and structural transformation in developing economies. Not until 20 or so years ago, however, did economists embed internal migration into a dynamic general equilibrium framework. The new strand of the literature has connected internal migration to various issues related to structural transformation, including urban labor and housing markets as well as geographic job and income distribution.

By matching three internationally comparable datasets, we establish some useful stylized facts, particularly on migration and fertility measures across countries at different stages of economic development. Our cross-country data analysis suggests a positive correlation between migration and fertility. Moreover, countries exhibiting higher migration and fertility rates are found to be less developed. Thus, rural-urban migration led by urban total factor productivity (TFP) growth may be viewed as a key driver that may transform a less-developed economy from "Malthus to Solow," using the terminology in Hansen and Prescott (2002).

Accordingly, we provide a simple dynamic framework in which both fertility and rural-­urban migration decisions are endogenously determined. More-rapid advancement in urban TFP relative to rural TFP induces structural transformation from farming to manufacturing. At the balanced-growth spatial equilibrium, there are opposing forces at work for the comparative static outcomes of migration and fertility. We establish conditions under which migration intensity (defined as migration flow divided by the rural population) and the total fertility rate turn out to be positively related, in response to more-rapid urban TFP advancement. The economics are intuitive: When urban TFP continues to rise over time, a higher urban wage encourages migration from rural to urban areas and leads to a fall in the rural-to-urban (rural-urban) population ratio. The decline in this ratio has two opposite effects on migration intensity. First, it causes a direct drop in migration intensity, which we call the population base effect. Second, because the urban fertility rate is lower than the rural fertility rate, the decline in the rural-urban population ratio also leads to a decline in the total fertility rate. Given the same migration flow, the decline in the rural-urban population ratio increases migration intensity, which we call the population growth effect. As long as the direct population base effect on migration intensity dominates the indirect population growth effect, an ongoing rise in relative urban TFP can deliver a positive relation between migration intensity and the total fertility rate. In this case, an economy with a higher relative income is associated with a combination of low migration intensity and low fertility.

The policy implication of our findings is important for economic development. We find that rural-urban migration not only shifts labor from agriculture to more-productive non-­agriculture sectors, but is also associated with a decline in fertility accompanied by higher per capita income as a result of labor reallocation across locations. Our results imply that policies that may help reduce the cost of urban living or enhance urban benefits would be useful for productive structural transformation.

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