Working Paper

Labor Migration, Capital Accumulation, and the Structure of Rural Labor Markets

Taryn Dinkelman, Grace Kumchulesi, and Martine Mariotti

WP DinkelmanKumchulesiMariotti LaborMigrationCapitalAccumulationAndTheStructureOfRuralLaborMarkets.pdf

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Between 1967 and 1974, a bilateral labor treaty boosted circular labor migration from Malawi to South Africa by 200%, triggering the return of over 53 million USD in migrant earnings to origin communities. A deadly migrant worker plane crash in
1974 ended the flow of money and all migrants were repatriated. We investigate how local labor markets responded to the temporary increase in the local supply of capital generated by this natural experiment. In districts receiving more migrant capital as a result of the plane crash, we find that workers - particularly women - moved out of farming and into more capital-intensive non-farm service sectors in thirty years following the end of migration. We show that investments in non-farm physical capital and in human capital contribute to these sectoral labor shifts. Our results demonstrate that large, temporary increases in the local supply of capital can trigger persistent changes in rural labor markets over the long run.

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