Does Aversion to Price Risk Drive Migration? Evidence from Rural Ethiopia

Abstract

I investigate whether a rural household's aversion to commodity price volatility drives out‐migration. Adapting the standard agricultural household framework, I model a rural household's migration decision making under uncertainty in commodity prices and migrant wages. Empirical results indicate that a greater household‐level aversion to price risk is significantly related to a higher likelihood of out‐migration. Moreover, the significant relationship between aversion to price risk and migration is more pronounced in villages that lack daily markets and food aid, implying that the negative welfare effects of food price volatility may be amplified by underdeveloped market mechanisms and poor local infrastructure. A battery of robustness checks and falsification tests provide strong suggestive evidence to conclude that migration is a household strategy to manage price risk. This article is among the first to highlight the link between price risk and migration, and complements the literature on income risk and migration.