Endogenous Cycles in Rural to Urban Migration

Abstract

We argue that the cost of rural–urban migration may act as an effective entry deterrence for successful migration to the urban sector. This cost results in some form of price rationing as the cash holding of a typical rural household falls short of the required cost. We demonstrate that certain endogenous forces will mesh in with the government policies to generate cumulative improvements in terms of trade in favour of the rural sector. Such improvements in terms of trade are shown to close the gap between the cost and the cash holding of a rural household. As a result, the rate of migration is positively related to the improvements in terms of trade in favour of agriculture. On the other hand, the terms of trade are shown to be inversely related to the rate of migration from agriculture. We establish, for the first time to the best of our understanding, that an endogenously driven and self-sustaining migration cycle would emerge from the rich dynamics involving migration flows and intersectoral terms of trade. We also demonstrates the possibility of a complex dynamics that can characterize the rural–urban migration and the attending development process. One can argue, on the basis of this type of complex dynamics, development process can be unpredictable and highly fragile. In other words, the principles of econophysics can offer an important new framework to understand labour flows in a complex society. JEL: J31, C78