Interregional Migration and Polarisation: A Theoretical Analysis

We suggest that people higher up in the income ladder care more for the 'quality of life' rather than for the level of income per se. We introduce such a behaviourial assumption in a model of 'rural-urban'and 'urban-urban' migration. 'Quality of life' depends crucially on the 'social infrastructure' which is provided by the regional governments. We show, how starting from a given distribution of skilled labour across two regions and given state of social infrastructure, one of the region loses all the skilled people and the regions are polarised as 'skilled' and 'unskilled' segments of an economy. The results derived in the model continue to hold in more robust specifications of the framework. They also continue to hold when regions are allowed to choose tax rates to finance 'quality of life'.