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Migration, roads and labor market integration: Evidence from a planned capital city
40
Citations
17
References
2014
Year
Unknown Venue
Human MigrationInternal MigrationInternational Factor MobilitySocial SciencesSpatial Arbitrage PuzzleLabor MigrationRegional ScienceLabor Market IntegrationPlanned Capital CityEconomicsPublic PolicyUrban Economic DevelopmentRegional EconomicsStandard DeviationUrban PlanningUrban GeographySpatial EconomicsUrban EconomicsBusiness
Wages in developing countries differ greatly across sector and across space. In Brazil, the average wage in a municipality at the 90th percentile of the wage distribution is 3.2 times larger than the average wage in a municipality at the 10th percentile of the wage distribution. Adjusting for individual characteristics, industry, and the cost of living, the 90/10 municipality wage gap is 2.1. These large differences in returns to labor present a spatial arbitrage puzzle: why do people not migrate to equalize wages across space? We propose one explanation: it is costly to move. We use the construction of a planned capital city, Brasilia, to generate plausibly exogenous variation in the national road network, and examine the role of roads in facilitating labor market integration. Using a database of gross inter-municipality flows, we construct and estimate a spatial equilibrium model where migration is costly. The results yield that access to roads is a key determinant of migration. Reducing the marginal cost of traveling by 50% would increase migration rates to 13%, from a base of 9.5%. This would yield an increase in mean welfare of 8.1%, and a reduction in the dispersion (standard deviation) by 6.2%. The effect is reduced by 4.3% once the general equilibrium effects of migration are computed.
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