The Long Run, Dynamic Impacts of Technology Spillovers and Amenities on Rural- Urban Migration Behavior

In this paper a two period overlapping generation model with an urban and rural region is developed where the number of high skill individuals working in each region is determined endogenously. The basic model is modified to examine how migration behavior reacts to: 1) a knowledge externality introduced in the urban employment sector; and 2) introduction of rural amenities and the effect of an increase in amenity benefits on migration behavior. In the first case it is found the knowledge externality, which is only realized by high skill and educated individuals, results in the unambiguous movement of these high skill workers to the urban region, a further explanation of the so called “brain drain” effect. However, in the case of amenity improvements the result is ambiguous. In the presence of improved amenities in rural areas, high skill workers generally migrate to rural areas at the high steady state, but in the low steady state equilibrium actually migrate to urban areas with less amenities. This last, less intuitive, result is due likely to a tradeoff between wages and amenities that favors higher urban wages in the low steady state.