Florian Trouvain

Why do so few rural households in developing economies migrate to high-wage urban areas? I build a dynamic general equilibrium model to quantify the role of risk as a barrier to rural-urban migration. Migration is risky in two ways. First, households may not know their initial urban income before they move. Second, households in the urban sector are more exposed to persistent income shocks. I discipline the model using South African panel data and find that these risks together hold the urban population share roughly twenty percentage points below where it would otherwise be. Providing information about initial urban outcomes closes more than half of the gap, encouraging migration among high-income rural households, who have the most to lose from a low draw. Insurance raises migration by a similar amount, but instead draws in the rural poor, who are particularly exposed to urban income shocks after migration. Wealth is no substitute for insurance. While wealth reduces urban consumption risk, it also lowers the share of labor income in consumption and, with it, the gains from moving to a higher-wage location. A model that ignores initial uncertainty and persistent income shocks overstates the residual migration wedge by a factor of two.

I explore the role of land as a fixed factor of production in shaping consumption volatility and consumption inequality in the presence of idiosyncratic uninsurable labor income risk. Land as an asset in fixed supply offers a particularly effective form of self-insurance through its effect on the share of safe to risky household income in general equilibrium. I use the theory to explain consumption dynamics in land-intensive rural economies. The model helps explain the puzzlingly low passthrough from income shocks to consumption as well as low intergenerational mobility found for rural households in developing economies.

I develop a tractable semi-endogenous multi-country growth model with a technology adoption margin. Innovation and adoption are skill-intensive activities, and a tradeoff arises whether skilled labor is used to push out the technological frontier or to adopt existing technology. I use the theory to revisit the effect of market integration on growth, especially among asymmetric countries with large differences in innovative capacity. Transitional dynamics and long-run effects implied by the model differ substantially from benchmark endogenous growth models and jointly explain stellar per capita growth in emerging markets and the disappointing growth performance of advanced economies after rising global market integration since the 1990s.

I argue that rapid rural-to-urban structural change—and the inherent risk asso- ciated with households moving from traditional farming into urban economic activ- ity—are central drivers of precautionary savings, generating capital outflows along the development path. I develop a tractable model that explores this argument. The key ingredients of the model are structural transformation away from agricultural pro- duction and households’ uncertain, heterogeneous income-growth experience as they enter the urban sector. The model provides new insights into the link between con- sumption smoothing, precautionary savings, and the uneven distribution of catch-up growth across households. Consistent with the theory, I present evidence from China that highlights stark differences in savings behavior across rural and urban households.