Does Rural Household Income Depend on Neighboring Communities? Evidence from Israel

In Israel, rural communities are those with up to 2000 residents, and rural areas include only rural communities. This paper explores the dependence of rural incomes on nearby urban areas. This dependence is mostly implied by rural-to-urban or urban-to-rural selective migration (or both). Migration flows can be affected by differential wages, housing costs and other amenities, and by commuting costs and costs of migration. An income generating equation, that includes characteristics of nearby urban communities as well as other spatial indicators among the explanatory variables, is estimated for rural households in Moshav villages using 2006 survey data. The results show that the population of nearby urban communities is significantly associated with rural household per-capita income. In particular, the urban population within 10 km is positively associated with per-capita income, while the urban population within 10 to 40 km is negatively associated with per-capita income. These opposite effects suggest that commuting costs are among the major determinants of the direction of the net migration of high-income households. Surprisingly, other spatial variables, including average per-capita income in nearby urban communities, do not affect rural income significantly