April 28, 2015
News /
Posted by NCID

NCID recently had the honor of hosting Professor Kaivan Munshi of University of Cambridge's Economics Faculty in Pamplona. Professor Munshi presented his recent work on the role of the caste system in India in defining economic and social trends. In the paper, he examines intra-cast support networks, or insurance, as they affect the likeliness of someone to migrate to the urban labor market.

Munshi summarized the context of the paper as the following. "The rural urban wage gap has exceed 25% for decades in India and at the same time we find extremely low rates of rural-urban migration. It is the combination of these two facts which basically leads us to conclude that there some friction preventing people from moving from rural to urban areas." Untangling this remarkable anomaly required looking at what features make India anomalous, beginning with the caste system.

Within sub-castes, strong ties serve as an informal financing and insurance institution. As there are few formal insurances available, leaving that network can represent a serious financial risk. This relationship drives the primary conclusion of the paper. "In India you have very well functioning community-based rural insurance networks and if people consider moving into the city and will lose access to these networks, they may actually forego the increase in income that they could expect by moving simply because they don't want to lose out on that insurance." Supporting this analysis, Munshi presented rich statistical analysis of domestic migration data and household-level government surveys to show that individuals most likely to need the insurance are the least likely to migrate.

"These workers are just not responsive at all to wages. They seem to be much more responsive to risk. If you could somehow do something to give them a kind of safety net, or a credit, or something outside this network, migration would increase dramatically. As you could imagine, the gains in productivity would be massive."
Before and following the seminar, Munshi met with members of NCID to discuss his work and on-going projects at the center. Munshi’s research has been published in the American Economic Review, Journal of Political Economy, Quarterly Journal of Economics, and the Review of Economic Studies. He is currently co-editor of the Journal of Development Economics.