Temporary vs. Permanent Migration in A Spatial Economy : Evidence from India

This paper argues that it is important to distinguish temporary migration from permanent migration for estimating the aggregate and local welfare effects of migration frictions. This is because workers migrating temporarily leave their families behind, and thus economic conditions both at origin and destination matter for the destination choice and household welfare of temporary migrants. To shed light on spatial and aggregate implications of temporary migration, I develop and quantify a quantitative spatial general equilibrium trade model that allows for permanent and temporary migration. Estimates suggest that relative to permanent migration, temporary migration matters 1.3 times more for average welfare and five times more for the welfare of the poorest 10% districts in Indian economy. I also find that shutting down temporary migration increases spatial inequality by 23% and reduces the average productivity in tradable sectors by 30%. Finally, ignoring temporary migration results in overestimating the average loss from redistributive policies and underestimating the gains to the poorest location