The Dynamics of Growth and Migrations with Congestion Externalities

The paper develops a simple Solow-like growth model, with two independent geographical spaces, where migration is possible and it is stimulated by wage differences. The model assumes a congestion externality: high concentration of individual agents in one of the economic spaces implies losses in the ability to accumulate physical capital. Combining wage incentives, negative externalities of excessive concentration of people and a mechanism of discrete choice that governs the decisions concerning migrations, the analysis reveals that for some combinations of parameter values strange dynamics arise. A Neimark-Sacker bifurcation takes place, leading to endogenous cycles that describe the long term evolution of the capital accumulation and consumption variables. Also, the steady state will be characterized by never ending fluctuations on the share of individuals remaining in each one of the two assumed regions.