Economic Development and the Spatial Allocation of Labor: Evidence From Indonesia
Gharad Bryan
London School of Economics
Melanie Morten
Stanford University and NBER
September 25, 2015
Abstract
We aim to understand how much of cross country productivity differences and growth
in labor productivity during the development process, can be explained by decreases
in the costs of labor migration. We use a spatial general equilibrium model of worker
selection to decompose the growth of labor productivity in Indonesia since 1976, and
the labor productivity gap between the US and Indonesia. Our surprising results imply
that, while improvements in in situ labor productivity and the spatial allocation
of human capital resources account for about 55% of Indonesian labor productivity
growth since 76, improvements in spatial mobility, due to lower costs of movement
and improvements in the amenity of high productivity locations, account for nearly
as much: 45%. In a comparison to the US, higher costs of movement in Indonesia account for 10% of the labor productivity gap.The decompositions imply a high degree
of complementarity: improvements in labor mobility over the development process
allow great access to opportunities and improve aggregate productivity.
Keywords: Selection, Internal migration, Indonesia
JEL Classification: J61, O18, O53, R12, R23
