Urban growth and uninsured rural risk: Booming towns in bust times

Urban growth and uninsured rural risk_ Booming towns in bust times.pdf
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Abstract
Rapid urbanization also happens when economic growth and urban job creation are absent,
such as in Africa and Latin America during the eighties. Why do some countries urbanize
faster while having worse economic growth? This paper finds that higher aggregate agri-
cultural risk induces rural-urban migration, providing an additional channel to explain the
urbanization trend. Uninsurable expected risk will lead to rural-urban migration as a form
of ex-ante insurance if households are liquidity constrained and cannot overcome adverse
shocks. The effect is robust to controlling for the traditional view of urbanization driven by
industrialization, and to several alternative explanations such as government spending.