Productivity differences and inter-state migration in the U.S.: A multilateral gravity approach

- We construct a dynamic general equilibrium model of migration with multiple destination choices.
- The proposed model endogenously generates a multilateral gravity equation of migration though productivity shocks.
- The model explains interstate migration of the U.S. reasonably well as result of productivity shocks across states.
- Long-run changes in capital intensity of the production process and the demand for services over manufactured goods impact aggregate level of migration.

In this paper, we study the quantitative role of productivity differences in explaining migration in presence of multiple destination choices. We construct a dynamic general equilibrium model with multi-region, multi-sector set-up where labor is a mobile input, which adjusts to regional and sectoral productivity shocks, resulting in migration across regions. The proposed model generates a migration network where the flow of migrants between any two regions follows a gravity equation. We calibrate the model to the U.S. data and we find that variation in industrial and regional total factor productivity shocks explains about 63% of the interstate migration in the U.S. Finally, we perform comparative statics to estimate the effects of long-run structural changes on migration. We find that capital intensity of the production process and the demand for services over manufactured goods negatively impact aggregate level of migration whereas asymmetries in trade patterns do not appear to have substantial effects.