Time to Accumulate: The Great Migration and the Rise of the American South

The idea that labor scarcity can induce economic development has been long hypothesized (Hicks, 1932; Habakkuk, 1962), but the evidence is scarce, especially on non-agricultural development. In this paper, I assess the role of the Second Great Migration (1940-1970) on the subsequent structural change in the American South between 1970 and 2010. Empirical results using shift-share instruments show that out-migration incentivized physical capital investment and capital-augmenting technical change, increasing capital and output per worker in both agriculture and manufacturing at least until 2010. Labor reallocated from agriculture to nonagriculture. I then develop and calibrate a dynamic spatial equilibrium model that allows substitution between factors of production, factor-biased technical change, and Heckscher–Ohlin forces in trade. The quantitative results indicate that the adjustments to the Second Great Migration could have contributed to 7% of the total decrease in agricultural employment between 1940 and 2010 in the South. The contribution analyses suggest that labor-capital substitution played a leading role in economic adjustment to the migration, with capital-biased technical change and the quasi-Rybczynski effect playing important supplementary roles.