Migration, Policy and Welfare in the Context of Developing Economies : A Simple Extended Family Approach

After giving an overview of the state of migration policy in developing countries with special reference to Pakistan this paper essentially revisits the issue of policy and its effect on rural to urban migration under an extended family theoretical framework. This specific approach is motivated by empirical literature on migration in the context of developing countries which suggests the emergence of spatially separated but economically linked rural and urban households - expanded or extended families. The extended family in this paper consists of two households, the rural-origin and its urban-migrant offshoot. The migrant after leaving the countryside joins relatives in the city who through the assumption of income sharing within households sustain the migrant in case of unemployment. The economic tie linking the two households is remittances flowing from the migrants to the family members left behind. All decisions, migration and remittance, are based on altruism rather then self-interest. Thus in the model both migration and remittances are endogenously determined. This extended family framework is then employed to analyze the effect of the standard policy prescriptions, i.e., urban employment subsidy and a rural income subsidy on migration and urban employment. Also, the welfare effect of a subsidy transfer from urban to rural sector is analyzed. The results, especially in the case of the rural subsidy provision, are qualitatively different from those in the standard Harris-Todaro type literature on migration suggesting the sensitivity of predicted policy effects on the type of methodology employed.