A note on migration with borrowing constraints.

Abstract

"This note examines an important conflict between the theory and evidence on migration in LDCs. While the Harris-Todaro class of models explain the phenomenon of migration mainly by expected income differential between the economically advanced and the backward regions, the actual evidence in some cases suggests that migration could actually rise following a rise in income in backward areas. We resolve this puzzle by analysing migration in the context of the existence of imperfect credit markets in LDCs. We show that under certain plausible conditions, the rate of migration from the rural to the urban areas may actually rise when rural wages rise, as they ease the constraints on borrowing by potential migrants."