DP12977 Economic Shocks and Internal Migration
Internal migration can respond to local shocks through either changes in in- or out-migration rates. This paper documents that most of the response of internal migration is accounted for by variation in in-migration. I develop and estimate a parsimonious multi-location dynamic model around this fact. I then use the model to evaluate the speed of convergence and long run change in welfare across metropolitan areas given the heterogeneous local incidence of the Great Recession. Results suggest that while there are some lasting effects of the Great Recession across locations, around 60 percent of the initial differences potentially dissipate across space within 10 years. This is true even when locals from the most affected metropolitan areas do not out-migrate in higher proportions in response to local shocks.