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Rural-urban migration with remittances and welfare analysis

Author

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  • Hung, Li-Wen
  • Peng, Shin-Kun

Abstract

Given the growing importance of rural-urban migration with remittances to rural development and urban income inequality, this paper proposes a theoretical model to investigate unskilled migration with remittances and the relevant welfare implications. Migrants remit part of their wage incomes to support their families of origin out of distinct motivations. The adequate explanation for this behavior may be “enlightened self-interest.” Alongside that, we introduce the mental cost of migration, which means that both migrants and remaining members suffer when migrants leave their families and generate the utility loss. We then construct a modified Melitz model with these ingredients to examine the urbanization process and corresponding welfare issues. The results show that when the remittance increases, it will enlarge the inequality between entrepreneurs and migrant workers. Moreover, when the trade cost is relatively small, the average utility level of migrant households is increasing in the remittance rate. Finally, we employ a numerical approach to simulate the optimal remittance rate and compare the results of different scenarios.

Suggested Citation

  • Hung, Li-Wen & Peng, Shin-Kun, 2021. "Rural-urban migration with remittances and welfare analysis," Regional Science and Urban Economics, Elsevier, vol. 91(C).
  • Handle: RePEc:eee:regeco:v:91:y:2021:i:c:s0166046220303148
    DOI: 10.1016/j.regsciurbeco.2020.103629
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    1. Karmaker, Shamal Chandra & Barai, Munim Kumar & Sen, Kanchan Kumar & Saha, Bidyut Baran, 2023. "Effects of remittances on renewable energy consumption: Evidence from instrumental variable estimation with panel data," Utilities Policy, Elsevier, vol. 83(C).
    2. Rui Yao & Jianping Ye & Lei Song, 2023. "The Impact of the Rural–Urban Migration of Chinese Farmers on the Use of Rural Homesteads: A Threshold Model Analysis," Land, MDPI, vol. 12(7), pages 1-27, July.

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    More about this item

    Keywords

    Urbanization; Remittances; Rural-urban migration; Mental cost;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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