Economic Determinants of Rural-Urban Labor Migration: The Case of Korea

Though it is conceded that the major stream of migration in developing countries flows from rural to urban areas, research on identifying the principle determinants of rural-urban migration are quite scarce. This is especially so in quantitative terms. Therefore, hypotheses concerning the economic determinants of rural-urban migration are investigated and economic impact of rural-urban migration is also examined in this dissertation. Migration can be viewed from many different perspectives -- selectivities, pull and push, human investment approaches, etc. However, this study follows economic tradition and views migration in a general equilibrium context. In the economic opportunity hypothesis, discrepancies of factor payments among regions is postulated. The significance of selected economic determinants such as the magnitude of capital investment and relative prices of rural and urban goods is then tested along with the economic opportunity hypothesis. The migration model in this study is specified as a system of interrelated equations. The simultaneous equations model which is employed, enables us to examine the effectiveness of key variables on migration, and the impacts of these variables on rural and urban labor markets. The model is tested with Korean labor force data. Rural wage rates were found to have a negative relationship with migration, whereas urban wage rates showed a positive relationship. The changes in relative prices of rural and urban goods were found to exert a significant impact on rural-urban migration. A decrease in prices of rural goods may induce an increase in out-migration and an increase in prices of urban goods may be a pulling factor of rural-urban migration such that rural-urban migration increases. Thus, the net out-migration may be reduced when agricultural prices increase. An increase in capital investment in rural areas was found to reduce rural-urban migration, and an increase in capital investment in urban areas was found to encourage rural-urban migration. Investment was found to be the most significant variable in determining wage rates, however, it was less significant than the prices of rural and urban goods in determining rural-urban migration. It is concluded that changing relative economic opportunities, changing output prices, and capital investments between rural and urban areas are important factors providing impetus for rural-urban migration and they are major economic determinants of rural-urban migration in Korea. Thus, government is faced with alternative policies for the reduction of rural-urban migration. For instance, the government may give wage subsidies to the rural employment sector, it may increase large-scale public investments, or it may allow a rise in agricultural prices. Each of these policies would tend to reduce the flow of resources from the agricultural sector to non-agricultural sector. A redistribution of resources may not facilitate efficient resource allocation and the optimal growth of the national economy. Therefore, the efficiency aspects of stimulating a resource flow should be examined carefully before these policy variables are implemented for achieving population redistribution