Whilst rural to urban migration can improve the allocation of labour, can it have unintended consequences on risk sharing in rural communities?
Rural to urban migration can improve the allocation of labour as rural workers migrate to the city where there are greater job opportunities. Yet, there has been little focus on the impact of this type of migration on those left behind. In this VoxDev talk, Professor Costas Meghir analyses the effect of incentivising rural to urban migration on informal insurance in rural Bangladesh. This type of insurance is crucial for rural communities to lessen their exposure to adverse risks. The researchers find that a short-term incentive for migration increases risk sharing amongst rural communities. Importantly, however, if the incentive remains for the long-term, then informal insurance decreases, increasing households’ exposure to risk.