Abstract
There is considerable debate on the returns to migration and sectoral change in developing countries, and magnitudes differ sharply depending on the method used. We aim to reconcile these divergent estimates by explicitly accounting for the role of heterogeneity in the returns to rural-urban migration and sectoral mobility. We use detailed longitudinal data from four developing countries—Indonesia, South Africa, China, and Tanzania—where we observe the location and employment choices of tens of thousands of adults over multiple periods. We model self-selection into migration in a multi-period Roy model that incorporates worker heterogeneity in both absolute and comparative advantage. We then estimate a correlated random coefficient model that considers both types of heterogeneity. This model lets us extrapolate the returns identified from switcher sub-populations to non-switchers—a group of particular interest to policymakers deciding whether to encourage migration as a development strategy. Our results show considerable heterogeneity in the returns to migration and sectoral mobility, allowing us to reconcile different estimates in the literature. Our results also identify situations where the sorting of individuals and their skills across locations and sectors is inefficient. In such cases, there could be large returns to encouraging migration and sectoral mobility.
