Intersectoral Size Differences and Migration: Kuznets Revisited

The empirical evidence on the Kuznets hypothesis ranges from positive or negative support to insignificant relationships. Most studies typically try this hypothesis in domains different than the one conceived by Kuznets, which pertains to the industrialization-led urbanization (i.e., significant rural-urban migration) phases of societies. In this paper, we offer a specific channel on Kuznets' hypothesis in his suggested domain. First, we establish theoretically that intersectoral urban-rural size differences result in an intersectoral migration, which works as an equilibriating mechanism in the economy, decreasing the inequality in due course. We then successfully test the predictions of the model. The theoretical predictions yield a recursive triangler system, in which we test, i)how the sectoral size differences influence the agricultural tastes/income, ii) how a change in agricultural tastes/income acts on migration, and iii) what happens to the income distribution as a result of migration. We find a very strong support for the theoretical predictions and the Kuznets hypothesis in its own domain.