Wealth Heterogeneity and the Income Elasticity of Migration

Abstract

How do income shocks affect international migration flows from poor countries? Income growth not only increases the opportunity cost of migration but also eases liquidity constraints. I develop a method to separate these countervailing individual effects and identify the overall income elasticity of migration. Using new administrative and census data from Indonesia, I find that positive agricultural income shocks increase labor emigration flows, particularly in villages with relatively more small landholders. However, in the most developed rural areas, persistent income shocks reduce emigration. Overall, the findings highlight the important role of wealth heterogeneity in shaping migration flows as incomes rise. (JEL F22, J43, O13, O15, Q11, Q12, R23)