To stay or to migrate? When Becker meets Harris-Todaro

Abstract

Allowing migration as an integral part of demographic transition and economic development, we construct a dynamic competitive migration equilibrium framework with rural agents heterogeneous in skills and fertility preferences to establish a location-fertility trade-off and explore its macroeconomic consequences. We characterize a mixed migration equilibrium where an endogenously determined fraction of high-skilled agents with high fertility preferences or low-skilled agents with low fertility preferences ultimately moves. By calibrating the model to fit the data from China, whose migration and population control policies offer a rich array of issues for quantitative investigation, we find strong interactions between migration and fertility decisions – the location-fertility trade-off – and rich interplay between the joint responses of these choices to changes in migration and population control policies. Our results indicate that both output per capita and urbanization rates are more responsive than Total Fertility Rate (TFR) to migration and population policies: A one-percent decrease in TFR corresponds to an over one-percent increase in output per capita and a more than two-percent rise in urbanization rates. Overlooking the location-fertility trade-off may thus lead to nonnegligible biases in assessing the implications and effectiveness of government policies.