Migration, Unemployment, and Growth through Urban Agglomeration

Based on agglomeration externalities, we build an endogenous growth model that is consistent with the set of empirical regularities – economic growth transitorily involves rural-to-urban migration, urban unemployment, and the resulting urban concentration. The equilibrium growth path analyzed in this paper naturally extends the static partial migration equilibrium by Harris and Todaro (1970). Urban agglomeration through migration can generate transitory urban productivity growth. When this feature is combined with the assumption that the urban sector exhibits the properties of greater frictions in job matching, the wage and unemployment gaps between rural and urban sectors arise during the urbanization process. We characterize the optimal growth path and draw some policy implications.